R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
PLEASE CLICK ON THE PAGE NUMBER TO MOVE TO THE RELEVANT PAGE.
KEY INDICES
CHINA
Strategy
Foot Off The Gas Pedal
Page 2
While deleveraging is not outright monetary tightening, the market impact is similar.
UNDERWEIGHT on commodities and industrials.
HONG KONG
Sector
Property
Page 5
Marginal impact from HKMA’s new round of prudential measures.
MALAYSIA
Results
Magnum (MAG MK/HOLD/RM2.10/Target: RM2.00)
Page 7
1Q17: Core results below expectations. Maintain HOLD but expect near-term share price
pressure as the group has frozen dividend payment while it contests IRB’s shocking notice
of a RM476m assessment.
Update
Petronas Dagangan (PETD MK/BUY/RM24.08/Target: RM27.20)
Page 10
Lower 1Q17 sales volumes are in line with industry trends, especially given that retail pump
prices are significantly above 2016’s average. Demand is expected to pick up in 2Q17.
Yinson (YNS MK/BUY/RM3.36/Target: RM3.75)
Page 13
Eni announced first oil from Ghana, three months ahead of schedule. This is a huge boost
to the group’s track record for early delivery and may boost FY18 earnings.
SINGAPORE
Results
Global Logistic Properties
DJIA
S&P 500
FTSE 100
AS30
CSI 300
FSSTI
HSCEI
HSI
JCI
KLCI
KOSPI
Nikkei 225
SET
TWSE
Prev Close
20804.8
2381.7
7470.7
5768.9
3403.8
3216.9
10267.4
25174.9
5791.9
1768.3
2288.5
19590.8
1549.6
9947.6
1D %
0.7
0.7
0.5
(0.1)
0.2
(0.1)
(0.0)
0.2
2.6
0.1
0.1
0.2
0.2
(0.2)
1W %
(0.4)
(0.4)
0.5
(1.7)
0.5
(1.2)
(0.1)
0.1
2.1
(0.4)
0.1
(1.5)
0.4
(0.4)
1M %
1.3
1.4
5.0
(2.0)
(1.8)
2.5
2.2
4.7
2.2
0.7
5.7
5.2
(1.3)
2.4
YTD %
5.3
6.4
4.6
0.9
2.8
11.7
9.3
14.4
9.3
7.7
12.9
2.5
0.4
7.5
956
2888
54
(0.1)
0.4
0.7
(5.7)
2.7
4.1
(20.0)
9.3
3.9
(0.5)
(9.7)
(5.0)
BDI
CPO (RM/mt)
Brent Crude
(US$/bbl)
Source: Bloomberg
TOP PICKS
Ticker
CP (lcy)
TP (lcy) Pot. +/- (%)
BUY
Alibaba
Beijing Ent. Water
Telekomunikasi
Tiga Pilar
V.S. Industry
OCBC
Siam Cement
BABA US
371 HK
TLKM IJ
AISA IJ
VSI MK
OCBC SP
SCC TB
123.22
6.01
4,530.00
2,080.00
2.04
10.41
520.00
139.00
7.60
5,000.00
2,500.00
2.20
11.70
600.00
12.8
26.5
10.4
20.2
7.8
12.4
15.4
SELL
Great Wall Motor
MGM China
Hartalega
2333 HK
2282 HK
HART MK
8.02
16.36
5.96
6.00
15.00
4.07
(25.2)
(8.3)
(31.7)
KEY ASSUMPTIONS
(GLP SP/HOLD/S$2.93/Target: S$2.75)
Page 16
4QFY17: Strategic review plodding on.
SATS (SATS SP/HOLD/S$5.29/Target: S$5.05)
Page 19
4QFY17: Long-term growth expected to be driven by JVs and associates.
Update
Singapore Airlines (SIA SP/HOLD/S$9.98/Target: S$10.00)
Page 22
Analyst briefing takeaways: Will transformation plan be a panacea?
THAILAND
Sector
Hotel
Core earnings continue to grow, supported by associates and mega projects.
Refer to last page for important disclosures.
2016
1.6
1.7
1.0
2.0
4.2
3.2
5.0
1.9
6.7
2017F
2.7
1.6
0.9
2.4
4.5
3.3
5.2
2.0
6.3
2018F
2.5
1.5
1.2
2.8
4.7
3.1
5.5
2.0
6.3
Brent (Average) (US$/bbl)
45
CPO
(RM/mt)
2,653
Source: Bloomberg, UOB ETR, UOB Kay Hian
55
2,600
60
2,500
CORPORATE EVENTS
Page 25
1Q17: Results wrap-up.
Update
CH Karnchang (CK TB/BUY/Bt26.75/Target: Bt37.00)
GDP (% yoy)
US
Euro Zone
Japan
Singapore
Malaysia
Thailand
Indonesia
Hong Kong
China
Page 27
Venue
Roadshow with Petronas Dagangan Bhd Hong Kong
Analyst Marketing on China Internet
Hong Kong
Sector
Singapore
Kuala Lumpur
Roadshow with Singtel
Canada
Roadshow with Tongda Group Holdings Hong Kong
Roadshow with United Overseas Bank Canada
Group meeting with Fortune REIT
Hong Kong
Roadshow with PT Siloam Int’l Hospital Canada
Analyst Presentation on SIN Strategy
Kuala Lumpur
Luncheon with United Overseas Bank
Singapore
Roadshow with Top Glove Corporation US/Canada
Begin
23 May
22 May
24 May
25 May
26 May
1 Jun
2 Jun
7 Jun
5 Jun
15 Jun
3 Jul
5 Sep
Close
23 May
23 May
24 May
26 May
26 May
1 Jun
2 Jun
7 Jun
16 Jun
16 Jun
3 Jul
12 Sep
1
R e g i o n a l
M o r n i n g
N o t e s
STRATEGY – CHINA
Foot Off The Gas Pedal
Monday, 22 May 2017
TERM SPREAD 10Y OVER 5Y
(%)
1.1
0.9
While deleveraging is not outright monetary tightening, overall liquidity conditions
will still deteriorate with negative implications for H-shares. The monetary stimulus
from 2016 looks like it has completed its round trip; both inflationary pressures and
industrial profit growth likely peaked in April. From an investment standpoint, we
are UNDERWEIGHT on commodities and industrials, and prefer companies with
strong cash flows and the healthcare sector.
WHAT’S NEW
0.7
0.5
0.3
0.1
-0.1
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Liquidity conditions have tightened further over the past weeks; overnight SHIBOR has
risen to 2.72%, while 10-year bond yields rose to 3.63%. Over this period, soft and hard
data have both weakened; the Caixin composite PMI has fallen to 51.2 in April, while both
PPI and CPI inflation eased. Copper and iron ore prices have also pulled back from their
recent highs. As a result, A-shares have recently peaked on 11 April, but H-shares edged
higher.
Source: Bloomberg
• Credit-fuelled recovery. The-stronger-than-expected 1Q17 economic growth was
12,000
mainly driven by the sizeable monetary impulse in 2016. As with most monetary reflation
exercises, part of the economic and profit recovery was driven by price inflation; 1Q17
import volume rose by only 13.4% yoy as opposed to growth of 31.2% yoy in renminbi
terms. Similarly, 1Q17 export volume rose 8.5% yoy against a 14.8% yoy rise in nominal
terms. Asset prices have also surged, residential property prices (based on 70 cities)
rose 10.5% yoy in 2016 while industrial metal prices increases over this period ranged
from 15% to 75% yoy.
10,000
• Increased emphasis on risk control. As the macro data improved, the TSF to GDP
ratio also hit a new high at 217.5% by 1Q17, up from 212.4% in 1Q16. Even if equity
capital raising is excluded from the tabulation of TSF, the ratio would have been 209.3%
and 205.2% respectively. In terms of bank credit growth, the authorities found that over
the course of 2016, half of new lending were of mortgages. Smaller banks were also
increasingly reliant on interbank borrowings and selling WMPs to leverage up their
balance sheets. These WMPs with 1 to 3 months’ maturity were investing in longer dated
bonds. Based on the latest available data, 40.4% of WMP’s funds were invested in fixed
income instruments in 1H16. By Apr 17, WMP balanced reached Rmb30tr while
interbank NCDs were about Rmb80t.
These developments have led to a rise in systemic financial risk that requires prompt
remedial actions, especially against a backdrop of higher global interest rates. Based on
the Fed’s guidance, the policy rate will rise by a further 50bp in 2017 and 75bp in 2018.
Chinese rates would likely have to rise by a similar quantum, especially if China is to keep
the renminbi steady to avoid complicating Sino-US relations or to prevent a resurgence of
capital outflow.
• What has changed? Since Nov 16, China’s monetary conditions have tightened, key
changes were:
a) PBoC’s balance sheet has fallen by Rmb636b in 1Q17;
b) O/N SHIBOR rate is now at 2.72% from 2.23% as at end-16;
c) 10-year bond yield at 3.63% from 3.06% as at end-16;
d) TSF growth slowed to 12.1% yoy in Apr 17 from 12.4% yoy in Nov 16;
e) Discounts for mortgage loans reduced.
In particular, the reduction in PBoC’s balance sheet is important as it reflects the PBoC’s
policy stance on money supply growth. As explained in our report entitled “Follow The
Money” on 21 April, despite the capital outflow in 2016, PBoC had expanded its balance
sheet by Rmb2.6t in 2016, which constituted as a main reflation driver, but this process
has reversed into a decline ytd. In addition, up to 14 May, there was a net withdrawal of
Rmb925b from the financial system via open market operations (OMO). The CBRC is
also moving towards a more detailed weekly reporting on WMP.
Refer to last page for important disclosures.
BBB+ OVER AA CORPORATE BOND SPREAD
BOTTOMED OUT
(pts)
16,000
(%)
0
1
2
3
4
5
6
7
8
9
10
11
14,000
8,000
6,000
Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb
10 11 11 12 12 13 13 14 14 15 15 16 16 17
HSCEI Index
Corp Bond Spread BBB+ over AAA (RHS, reverse scale) (RHS)
Source: Bloomberg, UOB Kay Hian
REAL M1 GROWTH POINT TO DOWNSIDE FOR
ASSET PRICES AND PROFIT
(y td, % y oy)
(3mma, % y oy)
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Real M1
Property price index
Industrial profit (RHS)
Source: CEIC, UOB Kay Hian
COPPER PRICE INDEX
(pts)
350
330
310
290
270
250
230
210
190
170
150
Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17
Source: CEIC
ANALYST
Mun Hon Tham, CFA
+852 2236 6799
[email protected]
2
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
• Where is the bottom line? That said, the PBoC did allow a net injection of Rmb160b for
the week of 15 May. What prompted this change? The soaring yields or concerns over
potential defaults if maturing WMP products could not be rolled over? Foresea Life
(which was earlier slapped with a 3 month ban on issuing WMP) said that it expects
Rmb60b of redemptions this year and warned of mass defaults and social unrest unless
the ban is lifted. The authorities may well have heeded the veiled warnings that there are
way too many “too big to fail” entities and the deleveraging process could get out of hand
if financing channels are disrupted. Given the urgency to reduce systemic risk, we see
the latest move, as only providing a temporary respite and the keener regulatory oversight
would remain. There is a good chance that the tightening efforts may be stepped up post
the 19th Party Congress at the year-end.
Given the myriad of monetary policy and banking regulatory changes, liquidity conditions
could be volatile. Timely gauges of the impact that these changes will have on the economy
and financial markets would be the real M1 money supply growth and the monetary
conditions index.
CONSENSUS EPS FORECAST UPGRADE HAS
SLOWED SIGNIFICANTLY
(EPS integer)
9
8
7
6
5
4
3
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
12m Forward
FY16
FY18
FY19
FY17
Source: Bloomberg
• Implications for the economy. The latest reading of real M1 money supply growth
suggests that further downside to growth momentum and asset pricing is in the offing. In
fact, inflationary pressures and industrial profit growth are likely to have peaked in April
and with the higher interest rates, nine have defaulted on their bonds in 4M17,
compared with 30 companies defaulting in 2016, out of which 10 were in 4M16. The
rising interest rate will lead to further headwinds for smaller private enterprises in 2H17
and support our below consensus forecast of 6.3% yoy real GDP growth for the year.
• Implications for asset pricing. Efforts to clamp down on credit and WMP issuance
growth have also led to a reduction in speculative funds flow into commodity futures.
Copper has given up all of its 2017 gains and iron ore prices are down 21.1% ytd, while
coal prices retreated 16.6% to Rmb572/metric tonne from its recent high. The weaker
commodity prices would have direct implications for EPS growth forecasts for energy,
materials and industrials sectors, which at this juncture account for 12.6% of the MSCI
China index.
A second pass-through channel is via the companies’ investment in WMPs. WIND
database points to 786 listed companies buying into these products to improve their
investment returns and total investments reached Rmb814b. China Shenhua is recorded
to have had invested Rmb33b. With the WMP’s issuance being restricted, future returns
for these companies would be negatively impacted.
The money raised via WMPs (also branded as universal insurance products by
insurance companies) is also likely to have been used by insurance companies to
enhance their investments and M&A strategies, for example Boaneng Group’s
(Foresea’s parent) earlier attempts to take over Chain Vanke. With this clampdown on
WMP issuance, we are also likely to see less of these heated M&A moves that had lifted
equity valuations.
• Market strategy. In our previous report, we had highlighted the expected shift in
investment style to focus on value over growth in 2H17 as earnings growth expectations
decline. These names we highlighted remained flat so far, while the MSCI index has
been up about 4%, but we expect outperformance in 2Q-3Q17. Bloomberg consensus
MSCI China FY17 and FY18 EPS forecast upgrades have slowed significantly over the
past month. In view of the higher financing stress, we have screened the Hong Kong
universe for stocks with strong free cash flows, low gearing and low beta.
STOCKS WITH STRONG CASH FLOWS
Bloomberg
Ticker
552 HK
874 HK
315 HK
Stock Name
China Communication Services
Guangzhou Baiyunshan Pharm
Smartone Telecoms
Market Cap
(US$b)
4.1
6.2
1.5
Net Debt to
Equity (%)
-49.0
-70.1
-12.0
Altman Z
Score
2.77
5.03
4.90
Current FCF
yield (%)
16.7
13.5
13.0
Source: Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
3
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
Within our coverage, we are also increasing exposure to healthcare via addition of TUL
into our BUY list, replacing China Longyuan Power, on which we are turning more
cautious following limited new policies in support of renewable energy. TUL is expected
to be a key beneficiary of the introduction of third-generation insulin in China. On our
SELL list we have added Nexteer (in place of BYD), which we expect to be affected by
the deteriorating outlook for its key customers (both abroad and within China). Spring
airlines is also a SELL At the sector level, are UNDERWEIGHT on commodities and
industrials and we are in favour of healthcare.
UOB KAY HIAN’S STOCK PICKS
Bloomberg Stock
ticker
name
Upside
(%)
PE
2017F
(x)
PE
2018F
(x)
Dividend
yield
2017F
(%)
139.00
26.00
14.6
20.4
28.2
18.5
18.4
15.6
0.0
3.8
6.01
4.13
10.76
55.47
15.36
4.88
7.60
5.29
13.10
65.00
17.60
6.32
26.5
28.1
21.7
17.2
12.0
29.5
12.4
8.7
8.3
47.7
19.6
20.9
9.6
6.8
7.6
29.6
18.1
18.6
2.6
3.2
1.6
0.0
1.1
0.0
8.02
12.44
11.10
5.62
6.00
10.00
5.16
4.35
-25.2
-19.6
-53.5
-22.6
9.9
13.0
15.1
31.1
10.7
12.2
8.8
27.0
2.8
1.7
6.0
0.7
Current
Price
(LC)
Target
Price
(LC)
121.27
21.60
371 HK
570 HK
1186 HK
CTRIP
2319 HK
3933 HK
Alibaba*
Anta Sports
Beijing
Enterprise
Water
China TCM
CRCC
Ctrip
Mengniu
The United Labs
SELL
2333 HK
1316 HK
1918 HK
220 HK
Great Wall Motor
Nexteer Automotive
Sunac
Uni-President
BUY
BABA
2020 HK
* For Alibaba, the data is for FY18 and FY19
Source: Bloomberg, UOB Kay Hian
• Where can we go wrong? A-H premium is not at the lowest level historically and much
higher compared to levels recorded prior to 2014. If Chinese investors continue to favour
non-renminbi denominated assets, then the better performance on the HSI or HSCEI
could continue, boosting the performance of the MSCI China index as well. At this
juncture, the A-shares are on average still trading at a 19% premium to H-shares and
assuming Chinese investors make a push towards valuation parity, then MSCI China
index or HSCEI still have meaningful upside. But we are discounting this as a base case,
given the view that both the Chinese monetary and corporate profit cycle has peaked.
Refer to last page for important disclosures.
4
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
SECTOR UPDATE
MARKET WEIGHT
Property – Hong Kong
(Maintained)
Marginal Impact From HKMA’s New Round Of Prudential Measures
TOP RECOMMENDATIONS
We see a marginal impact on the property sector from HKMA’s New Round Of
Prudential Measures as the move will result in marginal credit tightening of property
investors who account for a small proportion of overall buyers. Previous similar
mortgage tightening measures have had a limited impact on residential property prices.
Prefer deep-value and diversified developers with SHK and NWD as our key BUYs and
Wharf as our key SELL. Maintain MARKET WEIGHT.
Company
WHAT’S NEW
• The Hong Kong Monetary Authority (HKMA) issued guidelines on Friday to banks on a
new round of prudential measures for property mortgage loans to strengthen banks’ risk
management and resilience. The measures are as follows:
Share Price
(HK$)
Rating
Target
Price
(HK$)
New World Devt
BUY
9.73
13.14
Sun Hung Kai
BUY
114.40
148.87
Wharf Hldgs
SELL
66.65
59.23
Source: UOB Kay Hian
a) Raising the risk-weight floor from 15% by 10 ppt to 25% for new residential mortgage
loans granted after 19 May 2017 by banks using Internal Ratings-Based Approach to
calculate capital charges for credit risk.
b) Lowering the applicable loan-to-value ratio (LTV) cap by 10 ppt for property mortgage
loans extended to borrowers with one or more pre-existing mortgages and whose
income is derived in Hong Kong;
c) Lowering the applicable DSR limit by 10 ppt for property mortgage loans extended to
borrowers whose income is mainly derived outside of Hong Kong.
These measures take immediate effect. Mortgage applications for sales transactions on
19 May or earlier will not be affected for the second and third measures.
ACTION
• We see a marginal impact on the sector as the move will result in marginal credit
tightening of property investors who account for a small proportion of overall buyers.
Prefer deep-value and diversified developers with SHK and NWD as our key BUYs and
Wharf as our key SELL.
ESSENTIALS
• Marginal impact on the property sector as the move will result in marginal credit
tightening of property investors who account for a relatively small proportion of overall
buyers (10-20%). While there could be a marginal impact on end-user demand if the
mortgage rates were to rise as banks factor in higher capital costs, past experience has
shown it to be a short-term phenomenon. In the longer term, banks may cut mortgage
rates again due to competition unless government issues further tightening policies or
guidance.
ANALYSTS
Vikrant Pandey
+65 6590 6623
[email protected]
Lauren Jiang
+852 2236 6798
[email protected]
PEER COMPARISON
Upside/
Company
Ticker
Rec.
Share
Target
Downside
Price
Price
to Target
(HK$)
(HK$)
(%)
Market
-------- PE --------
------Yield------
Disc to
Curr
Fwd
P/B
ROE
Curr
Fwd
Book NAV
NAV
NAV
(US$m)
(x)
(x)
(x)
(%)
(%)
(%)
(HK$)
(HK$)
(%)
Cheung Kong
Property
1113 HK
BUY
57.25
70.28
22.8
27,473
10.4
11.5
0.8
7.8
2.7
2.4
70.66
100.4
-43.0
683 HK
HOLD
28.5
29.56
3.7
5,287
11.2
8.4
0.5
8
3.9
3.5
57.34
54.7
-47.9
17 HK
BUY
9.73
13.14
35.0
12,116
10.3
13.4
0.5
4.8
4.5
4.3
18.47
21.9
-55.6
Kerry
Properties
New World
Dev t
Sun Hung Kai
Properties
16 HK
BUY
114.4
148.87
30.1
42,578
13.7
13.0
0.7
7.1
3.4
3.1
164.71
183.8
-37.8
Wharf Hldgs
4 HK
SELL
66.65
59.23
-11.1
25,987
14.7
14.4
0.6
6.9
3.2
3.2
104.48
94
-29.1
Source: Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
5
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
• We believe the main purpose of the policy is to discourage over-exposure to
interest rate uncertainty. The policy mainly targets house buyers who have pre-existing
mortgages or whose incomes are derived outside of Hong Kong. According to HKMA,
mortgage applicants who have pre-existing mortgages account for around 20% of the
total while borrowers whose income is derived outside of Hong Kong makes up a
marginal 2%.
• Previous similar mortgage tightening measures have limited impact on residential
property prices. A study of the past tightening measures with similar adjustments to the
LTV and DSR reveals that while there was an up to 30% contraction seen in the
transaction volumes in the following two months, the measures had a very limited impact
on residential property prices. The prices largely crept up in the following two months.
IMPACT ON SIMILAR MORTGAGE TIGHTENING MEASURES
HKMA measure Aspect similar to current measure
Remarks
Volume Price
1m
2m
1m
2m
dated
10 ppt reduction in LTV (though broadTransaction volume dropped while prices
19th Aug 2010 based) from 70% to 60% .
‐29.1% ‐8.4% 1.5% 2.4% crept up
Transaction volume dropped while prices 10 ppt reduction in LTV (though broadcrept up in second month after marginal 19th Nov 2010 based) from 60% to 50% .
‐29.3% ‐14.2% ‐0.2% 2.8% drop in first month.
Delayed impact on transaction volumes, 10 ppt reduction in DSR (though broadbased) from 50% to 40% (max DSR
prices flat in second month after rising in 14th Sep 2012 60% to 50% ).
19.4% ‐19.3% 3.8% 0.0% first month.
Transaction volume dropped while prices
10 ppt reduction in max DSR from 50%
27th Feb 2015 to 40% .
‐28.2% 5.1% 2.6% 1.1% crept up
Source: HKMA, UOB Kay Hian
SUMMARY OF MAJOR CHANGES ON RESIDENTIAL LTV: (CHANGES IN RED)
Residential properties
Non‐self‐use or company held
Self‐use
Property value
Applicants whose income is mainly derived Applicants whose income is mainly derived in HK
from outside HK
in HK
from ouside HK
Applicants who have not borrowed other outstanding mortgages
DSR‐based lending
< HK$10m
60% (limit to HK$5m)
50% (limit to HK$4m)
50%
40%
>=HK$10m
50%
40%
Net worth‐based lending
40%
Applicants who have borrowed other outstanding mortgages
DSR‐based lending
<HK$10m
From 60% to 50% (limit to HK$4m)
40% (limit to HK$3m)
>=HK$10m
From 50% to 40%
30%
From 50% to 40%
30%
30%
Net worth‐based lending
Source: HKMA, UOB Kay Hian
SUMMARY OF MAJOR CHANGES ON DEBT-SERVICE-RATIO LIMITS: (CHANGES IN RED)
Property value
in HK
DSR‐based lending
< HK$10m
>=HK$10m
Net worth‐based lending
DSR‐based lending
<HK$10m
>=HK$10m
Net worth‐based lending
Residential properties
Self‐use
Non‐self‐use or company held
Applicants whose income is mainly derived Applicants whose income is mainly derived from outside HK
in HK
from ouside HK
Applicants who have not borrowed other outstanding mortgages
60% (limit to HK$5m)
50% (limit to HK$4m)
40%
40%
Applicants who have borrowed other outstanding mortgages
50%
From 60% to 50% (limit to HK$4m)
From 50% to 40%
40% (limit to HK$3m)
30%
30%
50%
40%
From 50% to 40%
30%
Source: HKMA, UOB Kay Hian
Refer to last page for important disclosures.
6
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
COMPANY RESULTS
HOLD
(Maintained)
Magnum (MAG MK)
1Q17: IRB’s Tax Claims Shock
Magnum underperformed in 1Q17 with a high prize payout ratio and weaker sales.
IRB served Magnum a shocking notice of assessment for a RM476m (RM0.33/share)
penalty on income tax issues, with a majority related to tax shields used in 2008-12
pursuant to its then privatisation exercise. While Magnum is rigorously contesting
IRB’s claim, it has to suspend quarterly dividend for the first time in four years.
Maintain HOLD, but expect near-term pressure on share price. Target price: RM2.00.
Entry price: RM1.80
Margins (%)
EBIT
PBT
Net Profit
RM2.10
RM2.00
-4.8%
RM2.30)
COMPANY DESCRIPTION
Number forecasting operator.
STOCK DATA
1Q17 RESULTS
Year to 31 Dec (RMm)
Revenue
Gaming
Others
Gross Profit
EBIT
PBT
Gaming
Others
Net Profit
Share Price
RM2.00
Upside
(Previous TP
1Q17
697.1
697.1
0.0
75.2
58.8
46.0
44.9
1.1
30.6
qoq % chg
9.9
9.9
(83.1)
(33.5)
(34.5)
(39.9)
(41.1)
>100
(32.2)
yoy % chg
(7.4)
(7.4)
(35.4)
(44.9)
(46.7)
(52.8)
(55.0)
n.m.
(55.6)
(%)
8.4
6.6
4.4
+/-ppt
(5.7)
(5.5)
(2.7)
+/-ppt
(6.2)
(6.3)
(4.8)
Source: Magnum Berhad, UOB Kay Hian
RESULTS
• Below expectations. Magnum reported 1Q17 revenue of RM697m (-7.4% yoy, 9.9%
qoq) and net profit of RM31m (-55.6% yoy, -32.2% qoq). 1Q17 net profit represents only
13% and 14% of our and consensus forecasts, respectively. Magnum was hit by both
lower ticket sales and bad luck factor. We estimate 1Q17’s payout was at 70%, 6ppt
higher yoy and 5ppt higher qoq.
• Ticket sales fell yoy again. We estimate Magnum’s sales per draw decline at 5.7%
(smaller % decline vs sales) given that 1Q17 had one draw less than 1Q16. Ticket sales
th
have yet to recover post-GST implementation; 1Q17 marked the 8 consecutive quarter
of yoy sales per draw decline.
GICS sector
Consumer Discretionary
Bloomberg ticker:
MAG MK
1,423.0
Shares issued (m):
Market cap (RMm):
2,988.2
691.5
Market cap (US$m):
3-mth avg daily t'over (US$m):
0.3
Price Performance (%)
52-week high/low
1mth
RM2.50/RM2.08
3mth
6mth
1yr
YTD
(4.5)
(7.1)
(10.6)
(3.2)
0.0
Major Shareholders
%
Casi Management
28.4
Asia 4D Hldgs
11.2
FY17 NAV/Share (RM)
1.72
FY17 Net Debt/Share (RM)
0.37
PRICE CHART
(lcy)
MAGNUM BHD
MAGNUM BHD/FBMKLCI INDEX
2.60
(%)
110
2.40
100
2.20
90
2.00
KEY FINANCIALS
Year to 31 Dec (RMm)
Net turnover
EBITDA
Operating profit
Net profit (rep./act.)
Net profit (adj.)
EPS (sen)
PE (x)
P/B (x)
EV/EBITDA (x)
Dividend yield (%)
Net margin (%)
Net debt/(cash) to equity (%)
Interest cover (x)
ROE (%)
Consensus net profit
UOBKH/Consensus (x)
1.80
80
4
2015
2,767
380
386
228
228
15.9
13.2
1.2
9.4
7.6
8.2
26.1
7.4
9.4
-
2016
2,660
332
338
191
191
13.3
15.8
1.2
10.7
6.2
7.2
24.5
6.4
7.9
-
2017F
2,686
338
346
196
196
13.6
15.4
1.2
10.5
4.5
7.3
21.7
6.5
8.0
218
0.90
2018F
2,740
386
394
229
229
15.9
13.2
1.2
9.2
5.3
8.3
18.4
7.5
9.1
223
1.02
2019F
2,768
389
398
231
231
16.1
13.1
1.2
9.2
5.4
8.3
15.2
7.5
9.0
222
1.04
3
Volume (m)
2
1
0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS
Vincent Khoo, CFA
+603 2147 1998
[email protected]
Yeoh Bit Kun
+603 2147 1988
[email protected]
Source: Magnum Berhad, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
7
R e g i o n a l
M o r n i n g
N o t e s
• Stronger qoq ticket sales growth on CNY effect. Positively, ticket sales per draw rose
10.4% qoq in 1Q17. The first quarter is traditionally the strongest quarter due to the
Chinese New Year (CNY) effect.
STOCK IMPACT
• No dividend declared, a negative surprise. Magnum did not declare any dividend in
1Q17 (1Q16: 4 sen, 4Q16: sen), the first time in four years. This came as a large
disappointment as dividend yield is a crucial factor in supporting the share price given this
lacklustre industry.
• Served with notices of assessment plus penalty on tax issues amounting to
RM476m penalty. Magnum and its wholly-owned subsidiary, and Magnum Holdings
(MHSB) were served with notices of assessment with a total penalty of RM476m by
Inland Revenue Board (IRB). The notices of assessment were raised principally pursuant
to the: a) disallowance of MHSB’s deduction of interest and loan stock interest expenses
incurred during 2008-13 for the court sanctioned selective capital repayment exercise and
privatisation of Magnum Corporation in 2008; and b) disallowance of Magnum’s deduction
of interest expenses for investments. Recall that before relisting in 2013, Magnum was
privatised by a JV between multinational private equity CVC and the present controlling
shareholder.
Monday, 22 May 2017
NOTICES OF ASSESSMENT BY IRB
Company
Magnum
MHSB
Total
Years of Assessment
Amount (Rmm)
2008, 2011 to 2015
2008 to 2013
22.71
453.75
476.46
Source: Magnum
SNAPSHOT OF MAGNUM
No. of outlets
Location
No. of games
Types of games
486
Peninsular Malaysia & Sarawak
5
4D, 4D Jackpot, 4D Jackpot
GOLD, 4D Powerball, mGOLD
Source: Magnum, UOB Kay Hian
• Vigorously challenging validity and legality of notices of assessment. Both Magnum
and MHSB have appointed solicitors and are initiating proceedings to challenge the
validity and legality of IRB’s notices of assessment. Obviously, Magnum firmly believes
IRB has no grounds for its claims as: a) claims on the tax shield were ratified by IRB at
that point in time, and b) assessment years for 2008-11 are already out of the prescribed
time frame under the present tax law. Based on the information at hand, we subscribe to
Magnum’s view that it would prevail, noting that IRB’s win would create a dangerous
precedent in deterring business formations in Malaysia.
• Uncertain impact on cash flow, and prospect of a long litigation process
undermines dividend policy. We understand that Magnum is awaiting its court
application for a stay against IRB’s ‘pay now and appeal later’ policy. Should it fail,
Magnum would have to cough up the RM476m (equivalent to RM0.33/share) in the
interim period, vs its cash pile of RM387m (and net debt of RM608m) as at Mar 17. The
litigation could drag for years, not much different from the long running claim (by IRB)
against Tenaga, or the custom department’s claims against the brewery companies.
• Meanwhile, the amendment of Gaming Act could bring light to the industry. Recall
the Deputy Prime Minister said the Common Gaming Houses Act 1953 will be amended
to combat online gambling early this year. Hopefully, the amendment would include the
liberalisation of online gaming for number forecasting, thus allowing the industry to
combat illegal bookies which have thrived in the last couple of years.
EARNINGS REVISION/RISK
• We cut 2017/18/19 net profit forecasts by 18%/6%/6% as we revised our ticket sales
growth forecast for 2017 from 3% to 1% and raised our estimate for 2017’s prize payout
to reflect 1Q17’s distortion. Our estimates for annual ticket sales growth for 2018 and
2019 remain unchanged at 1-2%.
VALUATION/RECOMMENDATION
• Maintain HOLD with a lower target price of RM2.00 (previously: RM2.30), following our
revision on earnings forecast and reduction in long-term growth rate to 1% (from 1.5%).
Our target price implies 14.7x/12.6x 2017/18F PE.
• Expect share price to fall substantially today, but too sharp a fall could create
buying opportunities for longer term-oriented investors. An ideal entry price would
be RM1.80. An indicative trough value, which incorporates a highly improbably scenario
of Magnum needing to fully settle IRB’s claim without recourse, is RM 1.67.
• We also lower our dividend payout ratio assumption from 95% to 70%. Prospective
yield is 4.5-5.3% in 2017/18.
Refer to last page for important disclosures.
8
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS
Year to 31 Dec (RMm)
Net turnover
EBITDA
Deprec. & amort.
EBIT
Associate contributions
Monday, 22 May 2017
BALANCE SHEET
2016
2017F
2018F
2019F
2,660
2,686
2,740
2,768
332
338
386
389
Year to 31 Dec (RMm)
Fixed assets
Other LT assets
2016
2017F
2018F
2019F
60
68
71
74
3,009
3,009
3,009
3,009
598
(6)
(8)
(8)
(8)
Cash/ST investment
404
459
527
338
346
394
398
Other current assets
157
158
158
158
0
0
0
0
3,631
3,694
3,766
3,840
Total assets
Net interest income/(expense)
(52)
(52)
(52)
(52)
ST debt
225
225
225
225
Pre-tax profit
287
294
342
346
Other current liabilities
177
179
179
181
Tax
(93)
(95)
(111)
(112)
LT debt
771
771
771
771
Minorities
(3)
(3)
(3)
(3)
2
2
2
2
Net profit
191
196
229
231
Shareholders' equity
2,416
2,475
2,544
2,613
Net profit (adj.)
191
196
229
231
Minority interest
40
43
47
50
3,631
3,694
3,767
3,841
2016
2017F
2018F
2019F
Other LT liabilities
Total liabilities & equity
CASH FLOW
Year to 31 Dec (RMm)
KEY METRICS
2016
2017F
2018F
2019F
Operating
239
208
239
244
Pre-tax profit
287
294
342
346
EBITDA margin
12.5
12.6
14.1
14.1
(105)
(95)
(111)
(112)
Pre-tax margin
10.8
10.9
12.5
12.5
6
8
8
8
Net margin
7.2
7.3
8.3
8.3
Working capital changes
18
1
0
1
ROA
5.3
5.3
6.1
6.1
Other operating cashflows
33
0
0
0
ROE
7.9
8.0
9.1
9.0
0
(11)
(11)
(11)
(11)
(11)
(11)
(11)
0
0
0
0
Turnover
(3.9)
1.0
2.0
1.0
10
0
0
0
EBITDA
(12.5)
1.9
14.2
0.8
Financing
(196)
(137)
(160)
(162)
Pre-tax profit
(14.3)
2.6
16.5
1.0
Dividend payments
(192)
(137)
(160)
(162)
Net profit
(16.4)
2.6
16.7
1.0
Issue of shares
0
0
0
0
Net profit (adj.)
(16.4)
2.6
16.7
1.0
Proceeds from borrowings
0
0
0
0
EPS
(16.4)
2.6
16.7
1.0
n.a.
n.a.
n.a.
n.a.
Tax
Deprec. & amort.
Investing
Capex (growth)
Proceeds from sale of assets
Others
Loan repayment
Others/interest paid
(4)
0
0
0
Net cash inflow (outflow)
43
59
68
71
335
377
437
505
27
22
22
22
404
459
527
598
Beginning cash & cash equivalent
Changes due to forex impact
Ending cash & cash equivalent
Refer to last page for important disclosures.
Year to 31 Dec (%)
Profitability
Growth
Leverage
Debt to total capital
28.8
28.3
27.8
27.2
Debt to equity
41.2
40.2
39.1
38.1
Net debt/(cash) to equity
24.5
21.7
18.4
15.2
6.4
6.5
7.5
7.5
Interest cover (x)
9
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
COMPANY UPDATE
BUY
(Maintained)
Petronas Dagangan (PETD MK)
Volatile 1Q17 Industry Volumes, But Likely To Pick Up
PetDag guided that the contraction in 1Q17 sales volumes is in tandem with industry
trends. We understand that consumer sentiment remains weak, especially from
customer groups highly sensitive to price movements. This can be observed as
1Q17 retail pump prices were 20-32% above 2016’s average. Nevertheless, 2Q17
demand is expected to pick up, while the group remains focused on rebranding its
non-fuel avenues. Maintain BUY and DDM target price of RM27.20.
WHAT’S NEW
• Key takeaways. In its briefing last Friday, Petronas Dagangan’s (PetDag) management
disclosed key takeaways namely: a) the 4% yoy contraction in volumes in 1Q17 to 3.58b
litres, which is in line with the decline in the industry volumes; b) but the group expects a
pick-up in demand by 2Q17 due to the Hari Raya season; c) uptick in opex and capex will
ramp up, as part of its initiative to rejuvenate the Kedai Mesra stores/branding; d) the
group is still looking at new partnerships and opportunities for digital innovation.
• Decline in retail volumes in line with industry trends. Retail volumes saw the largest
decline of 7% to 1.55b litres due to various reasons: a) the influence of new public
transportation as an alternative travel mode in urban areas; b) PetDag temporarily closed
about 21 stations (out of 1,065 stations) during the quarter for refurbishments (slightly
higher vs the normal run-rate); and c) consumer sentiment remains weak despite shortterm demand from early-17 festive seasons. 1Q17 was admittedly a volatile period for the
industry, as the yoy contraction in sales volumes in Jan/Feb/Mar 17 were at a similar
scale for PetDag. We understand that the volatility could be attributed to the cautious
stance from customer segments that are highly sensitive to price movements. 1Q17 retail
pump prices were significantly above the 2016 average. Based on historical pump prices
(charted in the RHS of the next page), 1Q17 retail pump prices for Ron97/ Ron 95/diesel
were 20%/27%/32% higher than the 2016 average levels (RM/litre) of RM2.10/RM1.76/
RM1.62 respectively.
• Commercial segment saw 3% decline in volumes. At 1.62b litres in 1Q17, we
understand that the main driver for revenue was jet fuel products due to more demand
from aviation customers. However, this was more than offset by continuous low demand
for commercial diesel (lack of demand from upstream O&G customers) and lower
demand for fuel oil/ bunkers. Nevertheless, management had always intended to focus on
high-value segments in the commercial business rather than driving volumes.
Share Price
Target Price
Upside
RM24.08
RM27.20
+13.0%
COMPANY DESCRIPTION
The principal domestic marketing arm of
Petronas for downstream products, in retail,
commercial, liquefied petroleum gas (LPG)
and lubricants.
STOCK DATA
GICS sector
Bloomberg ticker:
Shares issued (m):
Market cap (RMm):
Market cap (US$m):
3-mth avg daily t'over (US$m):
Energy
PETD MK
993.5
23,922.4
5,527.4
2.9
Price Performance (%)
52-week high/low
1mth
RM25.14/RM22.92
3mth
6mth
1yr
YTD
0.5
1.3
3.3
1.2
0.0
Major Shareholders
%
Petronas
69.9
EPF
5.0
FY17 NAV/Share (RM)
5.59
FY17 Net Cash/Share (RM)
2.38
PRICE CHART
PETRONAS DAGANGAN BHD
(lcy)
(%)
PETRONAS DAGANGAN BHD/FBMKLCI INDEX
26.00
110
25.00
24.00
100
23.00
22.00
KEY FINANCIALS
Year to 31 Dec (RMm)
Net turnover
EBITDA
Operating profit
Net profit (rep./act.)
Net profit (adj.)
EPS (sen)
PE (x)
P/B (x)
EV/EBITDA (x)
Dividend yield (%)
Net margin (%)
Net debt/(cash) to equity (%)
Interest cover (x)
ROE (%)
Consensus net profit
UOBKH/Consensus (x)
2015
25,171
1,484
1,094
790
789
79.5
30.3
4.8
14.5
2.5
3.1
(21.1)
110.4
16.3
-
2016
21,787
1,602
1,214
945
965
97.1
24.8
4.5
13.5
2.9
4.3
(43.6)
209.1
18.4
-
2017F
23,497
1,711
1,313
996
996
100.2
24.0
4.3
12.6
3.1
4.2
(42.7)
195.7
18.3
947
1.05
2018F
24,677
1,789
1,379
1,044
1,044
105.1
22.9
4.1
12.1
3.3
4.2
(42.7)
163.5
18.4
975
1.07
2019F
26,220
1,887
1,465
1,109
1,109
111.6
21.6
3.9
11.4
3.5
4.2
(43.1)
144.5
18.6
1,010
1.10
90
21.00
80
20.00
6
4
Volume (m)
2
0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS
Kong Ho Meng
+603 2147 1987
[email protected]
Source: Petronas Dagangan Bhd, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
10
M o r n i n g
N o t e s
Monday, 22 May 2017
STOCK IMPACT
• Anticipating pick-up in retail demand in 2Q17. Management is anticipating a need for
slightly higher inventory holdings in anticipation of pick-up in demand towards 2Q17,
especially during the Hari Raya festive season. There are no major industry updates
since the new mechanism of weekly pump prices, but we retain our view that PetDag’s
market share and scale enables it to be competitive.
DETAILED SEGMENTAL PERFORMANCE
• Uptick in opex while capex may ramp up. The group incurred RM0.3b in opex in 1Q17
1Q17 RETAIL PUMP PRICES (RM/LITRE)
SIGNIFICANTLY ABOVE 2016 AVERAGE
customer groups. In 1Q17, it partnered with CIMB for cashless payments and with GRAB
Malaysia on a long-term loyalty programme for Grab’s drivers. The group launched the
“Morning at Mesra” campaign for its station visitors to enjoy its breakfast offerings for
RM5. On the 2016 initiative signed with GreenTech ChargeEV for 66 electric vehicle
charge machines, management shared that 25 charging stations were installed as of
1Q17.
• Recognised a lagged net inventory gain in 1Q17. Although it did recognise inventory
lag losses in Mar 17 on the downtrend in oil prices and MOPS, the positive effects from
January-February period and the group’s efficient inventory holding period enabled it to
benefit from a lagged net inventory gain. This contributed to EBIT growth despite higher
opex and lower volumes. Nevertheless, this inventory effect is significantly lesser vs that
in 4Q16.
EARNINGS REVISION/RISK
• No changes to earnings forecasts. We still project business volume growth of 5% p.a
to mainly track Malaysia’s GDP growth of 4-5%. Although oil prices may remain volatile especially in 2Q17 - we still foresee that PetDag will benefit slightly on a mild increase in
oil prices in the medium term (consensus projection of oil prices is US$56-61/bbl in 2017
and 2018).
• Risks: a) Sharply higher opex; b) sharp uptrend of oil prices >US$80/bbl; and c) at this
level, the risk of major subsidy receivables on retail/petrol products may emerge and this
may severely weaken PetDag’s position, as it did in its historical earnings.
VALUATION/RECOMMENDATION
• Maintain DDM-based target price at RM27.20. This implies 26x 2018F PE, 14x 2018F
EV/EBITDA and 2.8% 2017F dividend yield. Our dividend payout assumption is at 75%,
above the minimum 50% policy and in line with its 5-year average of 85%. Key
assumptions are disclosed at the RHS of this page.
3.00
RON97
2.60
1Q16
1,654.9
1,670.2
412.6
15.6
% chg
-7%
-3%
-2%
-0%
RON95
Diesel
2.20
1.80
1.40
1 Oct 2016
1 Jul 2016
1 Apr 2016
1 Jan 2016
1 Oct 2015
1 Jul 2015
1.00
1 Feb 2015
• The group has been active with promotional activities that seem to target different
1Q17
1,546.2
1,619.5
403.5
15.4
Source: PetDag, UOB Kay Hian
19 Nov 2014
(10% above 1Q16) and guided this is a realistic quarterly running rate moving forward
(save for 4Q where opex is historically the highest). The elevated opex is needed for
continuous repair/maintenance while the group is employing professional and purchase
services to refurbish its non-fuel avenues (Kedai Mesra branding/stores). The RM20m
capex incurred in 1Q17 only means that the group’s progress to rebrand the non-fuel
avenues are still in its early stages and the capex may ramp up towards 2H17. Full-year
capex allocation is RM0.4b, mostly to be used for Kedai Mesra stores (about RM0.2m
allocation per store).
Volumes (m litre)
Retail
Commercial
LPG
Lubricants
1 Jan 2017
R e g i o n a l
Source: PaulTan Automotive Archives, UOB Kay Hian
EARNINGS AND FCFE FORECASTS
Revenue (RMb)
Sales Volume (m litres)
- Retail (% share)
- Commercial (%)
- LPG (% share)
- Lubricant (% share)
Core profit (RMm)
DPS (RMm)
ROE (%)
FCFE (RMm)
Net cash (RMb)
2016
21.8
15,350
43
44
12
1
965
0.70
18.8
1,160
2.2
2017F
23.5
16,169
43
44
12
1
996
0.75
18.3
56
2.4
2018F
24.7
17,180
43
44
12
1
1,044
0.79
18.4
54
2.5
Source: UOB Kay Hian
DDM VALUATION
Risk-free Rate
4.0%
Beta
0.75x
Equity Market Risk Premium
4.5%
Cost of Equity
7.4%
2017-20F Earnings Growth
5.4% (long-term: 4.5%)
2017F EPS
RM0.77
Dividend Payout Ratio
75%
Target Price
RM27.20
Source: UOB Kay Hian
• Maintain BUY. In the past, the company had been an outstanding beneficiary of a stable
low oil price environment, whereby it transitioned into a sustained period of strong cash
flow since end-14. Moving forward, we believe the stock remains attractive as it is a direct
beneficiary of a mild but steady uptrend in oil prices. Also, its premium valuation
adequately reflects PetDag’s position as a market leader in a non-cyclical industry and
minimal leverage position.
SHARE PRICE CATALYST
• Higher-than-expected earnings and dividend payouts. PetDag’s gross cash balance
forecast of ~RM2b alone can sustain three years of annual DPS of RM0.60. If we assume
PetDag pays out RM1b as special dividends, this could result in a special DPS of RM1.00
(~4% yield). This is with the view that Petronas is always in need to fund its own dividend
obligations (2016: RM16b, 2017: RM13b).
Refer to last page for important disclosures.
11
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS
Year to 31 Dec (RMm)
Net turnover
EBITDA
Deprec. & amort.
EBIT
Associate contributions
Net interest income/(expense)
BALANCE SHEET
2016
2017F
2018F
2019F
21,787
23,497
24,677
26,220
1,602
1,711
1,789
1,887
388
398
410
422
1,214
1,313
1,379
1,465
6
6
6
6
(8)
(9)
(11)
(13)
Pre-tax profit
1,212
1,310
1,373
1,458
Tax
Year to 31 Dec (RMm)
2016
2017F
2018F
2019F
3,794
3,740
3,622
3,509
503
499
489
478
Cash/ST investment
2,432
2,619
2,768
2,968
Other current assets
2,636
2,221
2,426
2,675
Total assets
9,365
9,079
9,306
9,630
Fixed assets
Other LT assets
ST debt
Other current liabilities
LT debt
(297)
(308)
(323)
(343)
Minorities
30
(6)
(6)
(6)
Net profit
945
996
1,044
1,109
Shareholders' equity
Net profit (adj.)
965
996
1,044
1,109
Minority interest
Other LT liabilities
Total liabilities & equity
CASH FLOW
Year to 31 Dec (RMm)
Monday, 22 May 2017
34
60
35
100
3,737
3,066
2,992
2,970
84
190
248
246
172
172
172
172
5,303
5,552
5,813
6,090
34
39
45
51
9,365
9,079
9,306
9,630
2016
2017F
2018F
2019F
KEY METRICS
2016
2017F
2018F
2019F
Year to 31 Dec (%)
Operating
1,984
1,099
1,147
1,232
Profitability
Pre-tax profit
1,212
1,310
1,373
1,458
EBITDA margin
7.4
7.3
7.2
7.2
Tax
297
308
323
343
Pre-tax margin
5.6
5.6
5.6
5.6
Deprec. & amort.
390
388
398
410
Net margin
4.3
4.2
4.2
4.2
6
6
6
6
ROA
10.8
10.8
11.4
11.7
Working capital changes
734
(285)
(296)
(287)
ROE
18.4
18.3
18.4
18.6
Other operating cashflows
(655)
(627)
(657)
(697)
Investing
(128)
(200)
(215)
(231)
Growth
Capex (growth)
(228)
(295)
(310)
(326)
Turnover
(13.4)
7.9
5.0
6.3
(19)
(14)
(14)
(14)
EBITDA
7.9
6.8
4.5
5.5
10
0
0
0
Pre-tax profit
11.8
8.0
4.9
6.2
109
109
109
109
Net profit
19.6
5.4
4.9
6.2
Financing
(693)
(711)
(783)
(801)
Net profit (adj.)
22.2
3.2
4.9
6.2
Dividend payments
(596)
(747)
(783)
(831)
EPS
22.2
3.2
4.9
6.2
(97)
36
0
30
Debt to total capital
2.2
4.3
4.6
5.3
Debt to equity
2.2
4.5
4.9
5.7
Net debt/(cash) to equity
(43.6)
(42.7)
(42.7)
(43.1)
Interest cover (x)
209.1
195.7
163.5
144.5
Associates
Investments
Proceeds from sale of assets
Others
Loan repayment
Others/interest paid
0
0
0
0
Net cash inflow (outflow)
1,164
187
149
200
Beginning cash & cash equivalent
1,259
2,432
2,619
2,768
9
0
0
0
2,432
2,619
2,768
2,968
Changes due to forex impact
Ending cash & cash equivalent
Refer to last page for important disclosures.
Leverage
12
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
COMPANY UPDATE
BUY
(Maintained)
Yinson (YNS MK)
First Oil In OCTP Ghana, Three Months Ahead Of Schedule
Eni announced first oil from OTCP Ghana (which charters Yinson’s largest FPSO)
three months ahead of schedule. This is within our expectation, but is nevertheless
a huge boost to Yinson’s track record for early delivery. We retain our FY18 earnings
forecast which is subject to upward bias, depending on the final acceptance date
which may be ahead of target. This may be positive for 2Q-3QFY18 earnings as
Ghana will offset the declining JV profits. Maintain BUY and target price of RM3.75.
Share Price
Target Price
Upside
RM3.36
RM3.75
+11.0%
COMPANY DESCRIPTION
One of the
operators
largest
pure
WHAT’S NEW
STOCK DATA
• First oil earlier than guided. Eni, the client of Yinson’s largest FPSO John Agyekum
GICS sector
Bloomberg ticker:
Shares issued (m):
Market cap (RMm):
Market cap (US$m):
3-mth avg daily t'over (US$m):
Kufuor (JAK), had on 20 May announced the first oil production from the Sankofa-Gye
Nyame field in OCTP Ghana. This is earlier than we had expected. Eni stated that this is
an extraordinary result given the improved time-to-market for the project: The first oil is
three months ahead of schedule and the project process, including the FPSO conversion,
took only two and a half years after the approval of the development plan.
• This achievement was expected and provided an additional boost to track record.
In Apr 17, we highlighted the high chance of Yinson repeating its track record for early
first oil, following reports from a Ghanian newspaper that the FPSO JAK arrived at the
field ahead of April. Given the standard timeline of hookup/commissioning, we estimated
that first oil could be brought forward to as early as June instead of management’s
guidance of Aug 17. Nevertheless, this is a huge boost to Yinson’s track record. Recap
that Yinson also achieved an earlier-than-expected first oil target via its Vietnam FPSO
Lam Son in the past.
• Potential boost to earnings. The original guidance was half-year contribution from
FPSO JAK in FY18 (assuming Aug 17 startup), translating to about RM70m in net profit.
Management is still maintaining its guidance, awaiting the client’s final acceptance.
Earnings will only flow in once final acceptance is concluded. We believe that in the
original contract expectations, the final acceptance was expected in Aug 17. There is a
possibility that this can be brought forward given the first oil achievement. Assuming the
final acceptance date is brought forward by three months to end-May, we believe FY18
profits could see a boost of RM30-40m. This will be positive as in: a) 2QFY18, the group’s
JV earnings may see a one-month loss of contribution from FPSO Lam Son’s termination
eff June 17, and from: b) 3QFY18, the group’s JV earnings may see contraction on the
rate stepdown of FSO Bien Dong (from Aug 17).
global
FPSO
Energy
YNS MK
1,088.2
3,427.8
784.1
1.1
Price Performance (%)
52-week high/low
1mth
RM3.32/RM2.65
3mth
6mth
1yr
YTD
3.6
3.8
20.9
9.0
(0.3)
Major Shareholders
%
Lim Han Weng
20.9
EPF
12.5
Kim Lian Bah
8.4
FY18 NAV/Share (RM)
1.91
FY18 Net Debt/Share (RM)
2.44
PRICE CHART
(lcy)
YINSON HOLDINGS BHD
YINSON HOLDINGS BHD/FBMKLCI INDEX
(%)
130
3.60
3.40
120
3.20
110
3.00
2.80
100
2.60
KEY FINANCIALS
Year to 31 Jan (RMm)
Net turnover
EBITDA
Operating profit
Net profit (rep./act.)
Net profit (adj.)
EPS (sen)
PE (x)
P/B (x)
EV/EBITDA (x)
Dividend yield (%)
Net margin (%)
Net debt/(cash) to equity (%)
Interest cover (x)
ROE (%)
Consensus net profit
UOBKH/Consensus (x)
2016
424
306
195
222
148
13.0
24.2
2.0
20.2
0.5
52.3
55.0
7.6
12.0
-
2017
543
273
162
197
213
18.7
16.8
1.8
22.6
4.8
36.3
114.7
8.5
8.5
-
2018F
723
531
313
229
229
20.1
15.6
1.6
11.6
0.8
31.7
106.3
6.9
9.1
225
1.02
2019F
1,379
878
494
323
323
28.4
11.1
1.5
7.0
0.8
23.4
103.8
8.0
11.8
287
1.12
2020F
1,348
846
463
291
291
25.6
12.3
1.3
7.3
0.8
21.6
95.2
7.2
9.7
282
1.03
2.40
90
10
Volume (m)
5
0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS
Kong Ho Meng
+603 2147 1987
[email protected]
Source: Yinson, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
13
R e g i o n a l
M o r n i n g
N o t e s
STOCK IMPACT
• Other upcoming events. We are expecting Yinson to return to Shariah compliance by
end-May 17. Also, our profit forecast is subject to updates, pending Yinson’s
announcement of the FPSO Lam Son’s redeployment charter terms to PetroVietnam.
EARNINGS REVISION/RISK
• Maintain our profit forecast at this juncture. Our forecasts have room for an upward
adjustment given the possibility of the client concluding the final acceptance test earlier
than Aug 17. As mentioned earlier, we may upgrade our FY18 earnings forecast by up to
RM30m-40m if the final acceptance is concluded in end-May. This event does not alter
our FY19-20F forecasts which already assume full-year contribution from FPSO JAK
(>RM150m in profits). Assuming FPSO Allan continues its charter until its firm expiry in
Apr 2019, we are expecting a slight earnings contraction in FY20. Ca Rong Do’s new JV
income contribution is expected to begin only from 3QFY20.
• Risks. Poor delivery. Early termination risk, especially for FPSO Knock Allan. This could
reduce earnings forecasts but would be offset by timely early compensation payment.
VALUATION/RECOMMENDATION
• Maintain target price of RM3.75. This SOTP-based target price is mostly based on DCF
on the FPSO divisions and implies a forward P/E of 19x, or 13x assuming full Ghana
contributions by FY19. We retain our target price, which also includes a potential
RM0.28/share value for the Ca Rong Do contract, and a lighter net debt position from the
early cash compensation in a termination event scenario of the FPSO Allan (we continue
to assume Allan’s termination risk at RM0.56/share). Note we partially factor in Lam Son’s
redeployment, and conservatively value the firm contract value of FPSO JAK.
Monday, 22 May 2017
SOP BREAKDOWN
FY18F numbers
Existing mid size FPSO
Valuation
DCF (Blended IRR 11-12%,
WACC 7.1%)
FPSO JAK (Ghana), firm DCF (Blended IRR 14%,
contract only
WACC 7.1%)
FSO
DCF
FPSO Ca Rong Do
Based on estimate
FPSO Rainbow
Based on ex-impairment
carrying value
of US$50m
MOPU
11x P/E
Marine
7x P/E
(-) Minus FPSO Allan
Represents a discount to
overall SOTP, assuming
termination risk
(-) Minus net debt
This assumes new funding fo
Ca Rong Do, early gains of
compensation of the full
outstanding contract value in
a termination scenario of
Allan, and RM0.5b
compensation from FPSO
Lam Son termination
Potential value of a
Without the redeployment to
revised Lam Son contract Petrovietnam, the impact to
SOTP is RM0.10/share
SOP
On 1.1b shares
Implied FY18F P/E
Implied FY19F P/E
Implied FY18F P/B
-
RM
1.09
1.70
0.20
0.28
0.18
0.08
0.37
-0.56
0.31
0.10
3.75
18.6x
13.2
1.9x
Source: UOB Kay Hian
• Maintain BUY. Yinson’s premium valuation (higher vs BAB’s 11x P/E) is justified by its
excellent track record for early delivery and it consistently meeting earnings expectations.
We continue to like its long-term potential. Yinson remains a major beneficiary of FPSO
project bids globally and securing new projects will boost its long-term earnings upside.
SHARE PRICE CATALYSTS
• Further catalysts would be additional contract wins (which is not assumed in our SOTP),
higher-than-expected profits from existing assets, and room for additional contract
value/contract tenure for FPSO JAK beyond its current 15-year firm contract.
• Shariah compliance by May 17.
• As part of the group’s long-term plans to reward shareholders, the group is contemplating
setting a long-term dividend policy. There is no guidance for now.
ENI’S TIMELINE AND GRAPHICAL VIEW ON OCTP GHANA PROJECT
Source: Eni 2Q17 earnings statement, UOB Kay Hian
Refer to last page for important disclosures.
14
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS
Year to 31 Jan (RMm)
BALANCE SHEET
2017
2018F
2019F
2020F
Net turnover
543
723
1,379
1,348
EBITDA
273
531
878
846
Other LT assets
Deprec. & amort.
111
218
384
384
EBIT
162
313
494
463
Total other non-operating income
(16)
0
0
0
Associate contributions
Net interest income/(expense)
Monday, 22 May 2017
83
56
21
27
(32)
(77)
(110)
(118)
Year to 31 Jan (RMm)
2017
2018F
2019F
2020F
4,610
4,845
5,014
5,233
803
803
803
803
Cash/ST investment
634
664
733
984
Other current assets
388
942
1,228
1,215
6,434
7,254
7,777
8,234
Fixed assets
Total assets
ST debt
222
360
445
515
Other current liabilities
501
1,066
1,043
1,034
3,171
3,078
3,269
3,424
134
134
134
134
2,406
2,609
2,873
3,105
0
7
14
22
6,434
7,254
7,777
8,234
2017
2018F
2019F
2020F
Pre-tax profit
213
293
405
372
LT debt
Tax
(19)
(47)
(65)
(59)
Other LT liabilities
Minorities
3
(17)
(17)
(22)
Shareholders' equity
Net profit
197
229
323
291
Minority interest
Net profit (adj.)
213
229
323
291
Total liabilities & equity
2017
2018F
2019F
2020F
Operating
157
329
417
683
Profitability
Pre-tax profit
213
293
405
372
EBITDA margin
50.3
73.5
63.6
62.8
Tax
(45)
(47)
(65)
(59)
Pre-tax margin
39.2
40.5
29.4
27.6
Deprec. & amort.
111
218
384
384
Net margin
36.3
31.7
23.4
21.6
Associates
(83)
(56)
(21)
(27)
ROA
3.5
3.3
4.3
3.6
Working capital changes
(43)
(78)
(286)
14
ROE
8.5
9.1
11.8
9.7
5
0
0
0
Investing
(1,300)
(232)
(517)
(567)
Capex (growth)
(1,560)
(450)
(550)
(600)
(128)
0
0
0
388
218
33
33
Financing
1,301
63
169
Dividend payments
(170)
(28)
0
0
Proceeds from borrowings
1,785
Loan repayment
CASH FLOW
Year to 31 Jan (RMm)
Other operating cashflows
Investments
Others
Issue of shares
KEY METRICS
Year to 31 Jan (%)
Growth
Turnover
28.0
33.0
90.8
(2.3)
EBITDA
(10.8)
94.4
65.3
(3.6)
Pre-tax profit
(14.3)
37.2
38.4
(8.2)
135
Net profit
(11.2)
16.1
41.3
(10.1)
(28)
(28)
Net profit (adj.)
43.8
7.5
41.3
(10.1)
0
0
EPS
43.8
7.5
41.3
(10.1)
130
550
600
(488)
(222)
(360)
(445)
Others/interest paid
174
183
7
9
Net cash inflow (outflow)
158
160
68
251
Beginning cash & cash equivalent
211
505
664
733
Changes due to forex impact
265
0
0
0
Ending cash & cash equivalent
634
664
733
984
Refer to last page for important disclosures.
Leverage
Debt to total capital
58.5
56.8
56.3
55.7
Debt to equity
141.0
131.8
129.3
126.9
Net debt/(cash) to equity
114.7
106.3
103.8
95.2
8.5
6.9
8.0
7.2
Interest cover (x)
15
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
HOLD
(Maintained)
COMPANY RESULTS
Global Logistic Properties (GLP SP)
4QFY17: Strategic Review Plodding On
Results came in line with our expectations. Management refrained from divulging
further details on the ongoing strategic review of its business. China operating
metrics softened this quarter, while plans for a China income fund remain on the
drawing board. Maintain HOLD with a higher target price of S$2.75 (from S$2.50),
pegged at a 19% discount to an increased RNAV of S$3.39/share (from S$3.12). Entry
price: S$2.55.
4QFY17 RESULTS
Year to 31 Mar
(US$m)
Turnover
Operating Profit
Pre-tax Profit
Core Net Profit
Reported Net Profit
Reported EPS (US
cent)
4QFY17
226.9
215.8
405.3
54.8
247.1
5.15
yoy
% chg
14.0
54.2
38.7
(10.7)
61.7
68.9
FY17
879.6
758.1
1,347.6
269.5
793.7
16.22
yoy
% chg
13.1
19.9
3.1
15.9
10.4
12.8
Remarks
Higher associates and JV contributions
Revaluation gains from cap rate
compression
Source: GLP, UOB Kay Hian
RESULTS
• Results in line with our expectations. FY17 core PATMI came in at US$269.5m,
accounting for 98% of our FY17 core PATMI estimate. 4QFY17 headline PATMI of
US$247.1m grew 61.7% yoy, on the back of higher revenue (+14.0% yoy), increased
contributions from associates and JVs (+174.9% yoy) and higher revaluation gains (+14.8%
yoy). Associates and JVs saw their share of results rise mainly from the inclusion of GLP US
Income Partners II and appreciation of BRL against the USD.
• Excluding exceptional items, 4QFY17 core PATMI of US$54.8m was down 10.7% yoy,
mainly on lower contributions from its second US portfolio (90% stake divested in 2QFY17)
and forex losses.
• Strategic review is still in progress, with management again emphasising that no
definitive transaction has been reached, and there is no assurance a transaction could
materialise. GLP remains in discussions with shortlisted bidders, with the due diligence
process still ongoing.
• Proposed dividend payout of 6.0 S cents, unchanged from last year. This represents a
payout ratio of 25.3% from headline FY17 earnings and 74.7% payout from core FY17
earnings.
Share Price
Target Price
Upside
Previous TP
S$2.93
S$2.75
-6.1%
S$2.50
COMPANY DESCRIPTION
Global Logistic Properties Limited develops,
owns and leases modern logistics facilities
across China and Japan. The Company's
customers include global retailers and third
party logistics companies. GLP offers
various solutions to customers to help
improve
STOCK DATA
GICS sector
Real Estate
Bloomberg ticker:
GLP SP
Shares issued (m):
4,687.0
Market cap (S$m):
13,732.9
Market cap (US$m):
9,881.9
3-mth avg daily t'over (US$m):
26.2
Price Performance (%)
52-week high/low
1mth
S$2.95/S$1.75
3mth
6mth
1yr
YTD
6.5
45.8
58.8
33.2
2.8
Major Shareholders
%
GIC
36.9
Hillhouse Capital
8.2
Elliot Capital
5.1
FY18 NAV/Share (S$)
1.86
FY18 Net Debt/Share (S$)
1.01
PRICE CHART
GLOBAL LOGISTIC PROPERTIES L
(lcy)
(%)
GLOBAL LOGISTIC PROPERTIES L/FSSTI INDEX
3.00
170
160
150
2.50
140
130
KEY FINANCIALS
120
Year to 31 Mar (US$m)
2016
2017
2018F
2019F
2020F
Net turnover
EBITDA
Operating profit
Net profit (rep./act.)
Net profit (adj.)
EPS (US$ cent)
PE (x)
P/B (x)
Dividend yield (%)
Net margin (%)
Net debt/(cash) to equity (%)
Interest cover (x)
ROE (%)
Consensus net profit
UOBKH/Consensus (x)
777.5
611.3
597.0
690.4
240.9
5.0
41.9
1.1
2.8
88.8
42.1
7.0
7.8
-
879.6
603.0
588.3
793.7
269.5
5.7
51.4
1.1
2.8
18.0
50.4
5.0
1.8
-
1,004.7
679.7
664.7
319.9
316.0
6.6
31.9
1.1
2.8
31.8
54.4
5.7
3.6
332
0.95
1,148.5
738.5
723.2
374.0
366.8
7.7
27.5
1.1
2.8
32.6
59.2
5.6
4.2
307
1.19
1,214.7
799.8
784.3
373.8
368.3
7.7
27.4
1.1
2.8
30.8
67.1
5.7
4.1
341
1.08
Source: Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
2.00
110
100
90
1.50
80
150
100
Volume (m)
50
0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS
Derek Chang
+65 6590 6614
[email protected]
Vikrant Pandey
+65 6590 6623
[email protected]
16
R e g i o n a l
M o r n i n g
N o t e s
• Softer performance from the China portfolio as 4QFY17 lease ratio dipped 2 ppt qoq
to 85% while retention ratio remained modest at 64% (3QFY17: 65%). This was largely
attributed to higher development property completions in the quarter (approximately 1m
sqm) with lower occupancies, bringing down overall numbers. New/renewal leases were
up 50.5% qoq to 2.83m sqm (69.5% yoy). Effective rent growth on renewals was 4.0%
(3QFY17: +5.3%). GLP believes that China’s mid-long term outlook remains positive, and
sees growing demand from the organised retail, auto parts and cold storage sectors. Cap
rates remained stable at 6.3% (3QFY17: 6.3%). Meanwhile, GLP’s Chinese asset
recycling plans remain on the drawing board.
• Maintain momentum for development targets in FY18, with the company targeting
US$2.2b (flat yoy) in development starts and US$1.7b (+6% yoy) in completion targets.
GLP met 105% and 106% of its FY17 starts (US$2.1b) and FY17 completions (US$1.5b)
targets respectively, while generating a development profit margin of 28%.
• Resilient Japan. Lease ratio was up 1ppt qoq to 98% as new/renewal leases leaped
54.5% qoq to 0.34m sqm (+100% yoy), with effective rent growth on renewals of 5.2%
(3QFY17: 6.6%). This was driven by ongoing healthy customer demand and limited
supply of modern logistics facilities. Cap rates compressed 10bp qoq to reach 4.7%.
Monday, 22 May 2017
REVALUED NET ASSET VALUE
Total Investment Properties (US$m)
Book value of Investment Properties
(US$m)
Surplus/ (deficit) to book (US$m) (1)
9,827
9,946
(119.0)
NPV of Development Profits (US$m) (2)
1,560
Fund management business (US$m) (3)
1,089
Surplus/(Deficit) from Listed entities (US$m)
(4)
(693.0)
Net Book Value (US$m) (5)
8,887.8
RNAV (US$m) (1+2+3+4+5)
10,725
Fully diluted no. of shares(m)
4,743
Fully diluted RNAV per share (US$)
2.26
Fully diluted RNAV per share (S$)
3.39
Discount to RNAV
-19%
Target Price (S$)
2.75
Source: UOB Kay Hian
GEOGRAPHIC BREAKDOWN
• US performance stable, likely scaling up of existing footprint. Lease ratio stayed
stable at 94%, as new/renewal leases declined 27.0% qoq to 0.7m sqm (+1.4% yoy).
4QFY17 effective rent growth was at 16.9% yoy. Cap rates compressed 9bp qoq to reach
5.8%. Management had previously highlighted its intent to pursue acquisitions of
stabilised assets in this market.
• Cap rate compression in Brazil, by about 39bp to reach 10.1% in 4QFY17.
Management opined that Brazil could continue to see lower interest rates (single digits),
underscoring higher liquidity and further cap rate compression. The Brazil investment
portfolio saw stable lease ratio of 89% in the quarter (3QFY17: 89%), though negative
rental reversions of 9.4% were registered.
VALUATION/RECOMMENDATION
Source: GLP
OVERALL LEASE PROFILE
• Maintain HOLD with an increased target price of S$2.75 (from S$2.50), pegged at a 19%
discount to our RNAV of S$3.12/share. We raised our RNAV estimate by nearly 9%, after
updating our US$/S$ forecasts. We have also lowered our historical RNAV discount by
1ppt from 20% to 19%, after incorporating more recent datapoints (narrower trading
discount between GLP’s share price and its RNAV in recent months).
EARNINGS REVISION
• We introduce our FY20 earnings forecast and also increase our FY18 and FY19 earnings
estimates by 6-10%, by factoring in GLP’s redemption of its perpetual securities last
month.
Source: GLP
SHARE PRICE CATALYSTS
• Growth in domestic consumption underpinning logistics demand.
• Visibility on strategic business review.
Refer to last page for important disclosures.
17
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS
Year to 31 Mar (US$m)
BALANCE SHEET
2017
2018F
2019F
2020F
Net turnover
879.6
1,004.7
1,148.5
1,214.7
EBITDA
603.0
679.7
738.5
799.8
Deprec. & amort.
Monday, 22 May 2017
Year to 31 Mar (US$m)
Fixed assets
Other LT assets
2017
2018F
2019F
2020F
49.5
49.9
50.2
50.6
19,041.7
19,350.6
19,659.9
19,969.4
1,443.2
14.7
15.0
15.2
15.6
Cash/ST investment
1,210.5
1,311.6
1,561.0
588.3
664.7
723.2
784.3
Other current assets
1,458.0
991.6
1,587.5
2,402.8
0.0
0.0
0.0
0.0
Total assets
21,759.8
21,703.6
22,858.7
23,865.9
195.1
0.0
0.0
0.0
ST debt
1,304.7
1,720.0
2,169.6
2,552.4
(121.3)
(119.2)
(130.7)
(139.3)
Other current liabilities
1,571.9
879.3
997.8
1,052.4
745.7
599.4
690.8
721.0
LT debt
4,294.7
4,391.4
4,712.4
5,033.3
Tax
(295.7)
(136.2)
(157.0)
(164.2)
Other LT liabilities
1,373.6
1,324.0
1,338.9
1,334.4
Minorities
Shareholders' equity
8,711.4
8,826.1
8,991.6
9,158.6
Minority interest
4,503.5
4,562.8
4,648.4
4,734.7
21,759.8
21,703.6
22,858.7
23,865.9
2017
2018F
2019F
2020F
EBIT
Total other non-operating income
Associate contributions
Net interest income/
Pre-tax profit
(262.7)
(143.3)
(159.8)
(183.0)
Preferred dividends
(28.9)
0.0
0.0
0.0
Net profit
Net profit (adj.)
793.7
269.5
319.9
316.0
374.0
366.8
373.8
368.3
Total liabilities & equity
2017
2018F
2019F
2020F
Year to 31 Mar (%)
CASH FLOW
Year to 31 Mar (US$m)
Operating
KEY METRICS
362.7
340.0
474.3
484.1
Profitability
Pre-tax profit
1,347.6
599.4
690.8
721.0
EBITDA margin
68.6
67.6
64.3
65.8
Tax
(295.7)
(136.2)
(157.0)
(164.2)
Pre-tax margin
84.8
59.7
60.1
59.4
14.0
15.0
15.2
15.6
Net margin
18.0
31.8
32.6
30.8
(195.1)
0.0
0.0
0.0
ROA
0.7
1.5
1.7
1.6
Working capital changes
(68.8)
(257.3)
(205.5)
(227.5)
ROE
1.8
3.6
4.2
4.1
Non-cash items
114.2
119.2
130.7
139.3
Turnover
13.1
14.2
14.3
5.8
EBITDA
5.8
12.7
8.6
8.3
Pre-tax profit
3.1
(19.6)
15.3
4.4
Net profit
10.4
101.9
16.9
(0.1)
Net profit (adj.)
15.9
n.a.
16.1
0.4
5.7
n.a.
16.1
0.4
Debt to total capital
29.8
31.3
33.5
35.3
Debt to equity
64.3
69.2
76.5
82.8
Net debt/(cash) to equity
50.4
54.4
59.2
67.1
5.0
5.7
5.6
5.7
Deprec. & amort.
Associates
Other operating cashflows
(553.6)
0.0
0.0
0.0
Investing
(604.9)
(2,635.5)
(2,680.4)
(2,990.8)
(14.3)
(15.3)
(15.6)
(15.9)
0.0
0.0
0.0
0.0
(1,500.0)
(940.0)
(764.5)
(1,068.2)
0.0
0.0
0.0
0.0
Others
909.3
(1,680.2)
(1,900.3)
(1,906.8)
Financing
435.6
2,396.5
2,455.5
2,388.8
(134.2)
(134.2)
(134.2)
(134.2)
0.0
0.0
0.0
0.0
629.4
711.5
770.5
703.8
0.0
0.0
0.0
0.0
Others/interest paid
(59.6)
1,819.2
1,819.2
1,819.2
Net cash inflow (outflow)
193.4
101.0
249.5
(117.9)
1,024.6
1,210.5
1,311.6
1,561.0
(7.4)
0.0
0.0
0.0
1,210.5
1,311.6
1,561.0
1,443.2
Capex (growth)
Capex (maintenance)
Investments
Proceeds from sale of assets
Dividend payments
Issue of shares
Proceeds from borrowings
Loan repayment
Beginning cash & cash equivalent
Changes due to forex impact
Ending cash & cash equivalent
Refer to last page for important disclosures.
Growth
EPS
Leverage
Interest cover (x)
18
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
HOLD
(Maintained)
COMPANY RESULTS
SATS (SATS SP)
4QFY17: Long-term Growth Expected To Be Driven By JVs And Associates
4QFY17 headline net profit included negative goodwill, excluding which earnings
would have risen 1.7% yoy. While valuations remain rich, we believe that the street
will continue to appreciate SATS’ strong cash flow and ability to generate returns on
capital. Thus, we expect valuations to remain status-quo despite expectations of
lower FY18 earnings. We believe that this is the reason valuation multiples have
expanded, as SATS’ ability to generate returns stands in contrast with other
industrials’. Maintain HOLD with a higher target price of S$5.05.
4QFY17 RESULTS
Year to 31 Mar (S$m)
Revenue
Gateway services
Food Solutions
Op Expenditure
Op Profit
Non operating income
PBT
Net Profit
Underlying Net Profit
4QFY17
425.8
190.4
233.9
yoy
% chg
2.0
3.6
0.8
FY17
1,729.4
750.8
973.0
380.0
3.3
1,498.8
45.8
30.6
(7.9)
183.3
230.6
78.5
76.4
66.6
51.6
26.2
31.3
1.7
309.1
257.9
234.3
yoy
% chg Remarks (4Q)
1.8
3.4 Higher flights handled.
0.6 Higher SFI revenue vs a low base, offset
by lower rev at TFK.
1.0 Higher staff costs, D&A and company
accomd & utilities costs.
7.4
55.4 Includes S$15m in negative goodwill.
Higher JV & associate income, mainly due
to contribution from new associate
Evergreen.
16.6
16.9
7.4 Excluding S$15m in negative goodwill.
Source: SATS, UOB Kay Hian
Share Price
Target Price
Upside
(Previous TP
S$5.29
S$5.05
-4.5%
S$4.60)
COMPANY DESCRIPTION
Airline gateway services and food solutions
provider. SATS also has a 59.4% stake in
Japan's TFK Corp, an inflight meal caterer
based in Narita and Haneda.
STOCK DATA
GICS sector
Bloomberg ticker:
Shares issued (m):
Market cap (S$ m):
Market cap (US$m):
3-mth avg daily t'over (US$m):
Industrials
SATS SP
1,114.9
5,897.8
4,244.0
8.9
Price Performance (%)
52-week high/low
1mth
S$ 5.32/S$ 4.05
3mth
6mth
1yr
YTD
7.5
6.4
21.9
9.1
9.3
Major Shareholders
RESULTS AND ANALYST BRIEFING TAKEAWAYS
• Earnings slightly below expectations on higher costs. Headline 4QFY16 net profit
included S$15m in negative goodwill from the reclassification of 25%-owned Evergreen
Sky Catering from long-term investment to an associate. Excluding this, core net profit
rose 1.7% yoy, below our and street estimates of a 5% and 4.3% rise. The deviation from
our estimate was due to: a) higher-than-expected staff cost as SATS was affected by
lower government subsidies and wage pressures, and b) higher accommodation and
utilities costs. SATS declared a final dividend of 11 S cents (FY16: 10 S cents). Payout
ratio amounted to 74% vs FY16’s 75.4%.
• Excluding EI, food solutions associate profits rose 18% yoy, but SATS indicated
this was primarily due to contribution from new associate Evergreen Sky. Excluding
the latter, food associate profits would have been largely flat yoy. Still, Malaysian in-flight
catering associate Brahim turned profitable in 4QFY17. Meanwhile, gateway associate
profits rose 4% yoy.
%
Temasek Hldgs
43.2
FY18 NAV/Share (S$)
1.48
FY18 Net Cash/Share (S$)
0.35
PRICE CHART
(lcy)
SATS LTD
SATS LTD/FSSTI INDEX
5.50
(%)
130
120
5.00
110
4.50
100
4.00
90
3.50
80
100
Volume (m)
50
KEY FINANCIALS
Year to 31 Mar (S$m)
Net turnover
EBITDA
Operating profit
Net profit (rep./act.)
Net profit (adj.)
EPS (S$ cents)
PE (x)
P/B (x)
EV/EBITDA (x)
Dividend yield (%)
Net margin (%)
Net debt/(cash) to equity (%)
Interest cover (x)
ROE (%)
Consensus net profit
UOBKH/Consensus (x)
2016
2017
2018F
2019F
2020F
1,698
312
215
221
218
19.7
26.9
3.9
17.9
2.8
13.0
(25.4)
n.a.
15.0
-
1,729
324
231
258
234
21.1
25.1
3.7
17.3
3.2
14.9
(24.8)
n.a.
16.7
-
1,718
293
216
235
223
20.0
26.5
3.6
19.1
3.4
13.7
(23.8)
n.a.
14.4
251
0.89
1,750
284
215
228
228
20.4
25.9
3.5
19.7
3.3
13.0
(22.2)
n.a.
13.6
268
0.85
1,799
290
219
234
234
21.0
25.2
3.4
19.3
3.4
13.0
(21.5)
n.a.
13.7
289
0.81
0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS
K Ajith
+65 6590 6627
[email protected]
Sophie Leong
+65 6590 6621
[email protected]
Source: SATS, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
19
R e g i o n a l
M o r n i n g
N o t e s
• Guided for lower operating margins in FY18, due to: a) higher licensing fees, b) wage
cost pressures, and c) price pressures from airlines. Following the end of Changi Airport
rebates in Mar 17, SATS guided for a S$10m-15m impact from higher licensing fees, in
line with our estimate of a S$11m-13m rise. Management also expects higher staff costs
over the new few quarters due to a reduction in government subsidies.
• Local in-flight catering revenue was flat (+0.1% yoy) despite higher pax throughput
growth at Changi. This implies that pricing for meals fell yoy. SATS alluded to the tough
operating environment for its airline customers, however demand for premium meals
remains robust. Meanwhile, TFK’s revenue fell marginally by 0.7% yoy, due to a slight dip
in volumes. For the full year, food solutions margins rose 0.9ppt to 17.1%, resulting in a
6% rise in operating profit on the back of a 0.6% top-line growth.
• Gateway services segment was the main profit driver for FY17. The segment’s
margin rose 1ppt yoy to 7.5%. Combined with revenue growth, this led to a 19% rise in
operating profit as the segment benefitted from increased economies of scale with the
Jetstar Asia and AirAsia contracts.
• Cash flow remained strong, with OCF margin improving 0.6ppt to 15.7%. Excluding
working capital, operating cash flow (OCF) rose 6% yoy. Meanwhile, dividends from
associates rose 24% yoy in FY17.
Monday, 22 May 2017
SEGMENTAL REVENUE
Year to 31 Mar
By Business
Gateway Services
Food Solutions
Corporate
Total
By Industry
Aviation
Non-Aviation
Corporate
Total
By Geographical Location
Singapore
Japan
Others
Total
Source: SATS
10
0
EARNINGS REVISION/RISK
3.6
0.7
0.0
2.0
366.3
58.0
1.5
425.8
1.8
3.4
0.0
2.0
345.5
59.5
20.8
425.8
2.8
-0.7
-3.7
2.0
16.2
15
5
in China, has commenced operations in Kunshan in Mar 17 and acquired three
customers thus far. SATS intends to ramp up the JV in FY18 and indicated that the JV is
on track for breakeven in FY19. Other plans include new ventures into non-aviation food
solutions businesses, while SATS also indicated that there is a possibility of partnering
with airlines to establish kitchen bases. Meanwhile, SATS’ guidance of lower operating
margins in FY18 is within expectations and we have already factored in lower FY18
earnings due to higher licensing fees. Going into FY19-20, we expect core earnings to
pick up as costs normalise.
190.4
233.9
1.5
425.8
(% )
20
• Diversifying into higher-growth markets; stay invested for long-term growth. SATS
• Wilmar JV expected to breakeven in FY19. The JV to supply safe and high quality food
yoy % chg
SEGMENTAL MARGINS
STOCK IMPACT
generated ROIC of 17.3% (inclusive of dividends from associates) in FY17. While we
expect returns to decline over the next two years mainly due to higher costs at Singapore,
we are heartened that SATS plans to diversify away from Singapore via strategic JVs.
4QFY17
13.6
11.2
10.8
9.4
7.4
3.2
FY11
FY12
FY13
Food solutions
12.9
17.1
12.1
5.7
6.5
FY15
FY16
7.5
2.0
FY14
FY17
Gateway services
Source: SATS, UOB Kay Hian
VALUATION
Long-term ROIC
14.8%
WACC
6.1%
Growth Rate based on Reinvestment rate
3.0%
Derived EV (S$m)
5,453
Equity value (S$m)
5,362
Add: Net cash less final dividend (S$m)
275
Fair value per share (S$)
5.05
Source: UOB Kay Hian
• We raise our FY18 net profit estimate by 3.7%, following management’s guidance that the
partial divestment of SATS HK and AAT will be completed in 1HFY18. We have also
assumed higher staff costs. We expect FY18 core net profit to decline 5% yoy, and
earnings to recover in FY19 subsequently.
VALUATION/RECOMMENDATION
• Maintain HOLD with a higher target price of S$5.05. We had valued SATS on a DDM
basis previously, however, we now value the company on an EV/Invested Capital, which
takes into account the return on invested capital along with the cost of capital. At our fair
value, the stock will trade at 24x PE and offer a dividend yield of 3.6%. Suggested entry
level is S$4.75.
SHARE PRICE CATALYST
• Lower staff costs, higher income from JVs and associates.
Refer to last page for important disclosures.
20
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS
Year to 31 Mar (S$m)
Net turnover
EBITDA
Deprec. & amort.
EBIT
Total other non-operating income
Associate contributions
Net interest income/(expense)
Monday, 22 May 2017
BALANCE SHEET
2017
2018F
2019F
2020F
Year to 31 Mar (S$m)
2017
2018F
2019F
2020F
1,729.4
1,717.9
1,750.0
1,799.0
323.5
293.1
283.6
289.5
Fixed assets
538.7
561.9
594.6
623.1
Other LT assets
884.2
921.4
944.3
92.9
77.2
68.2
971.4
70.4
Cash/ST investment
505.8
501.7
482.1
230.6
215.9
477.9
215.4
219.1
Other current assets
350.7
337.6
343.3
9.9
352.2
13.1
0.7
0.7
2,279.4
2,322.5
2,364.3
2,424.6
65.2
56.7
61.6
65.6
3.4
2.7
2.3
2.2
Total assets
ST debt
Other current liabilities
10.4
9.4
8.4
7.5
394.4
388.4
394.0
405.6
98.2
Pre-tax profit
309.1
288.4
280.0
287.6
LT debt
98.2
98.2
98.2
Tax
(48.3)
(49.0)
(47.6)
(48.9)
Other LT liabilities
85.2
80.1
80.1
80.1
Minorities
(2.9)
(4.1)
(4.3)
(4.5)
1,603.5
1,654.6
1,687.5
1,732.6
Net profit
257.9
235.3
228.1
234.2
Minority interest
87.7
91.8
96.1
100.6
Net profit (adj.)
234.3
222.9
228.1
234.2
Total liabilities & equity
2,279.4
2,322.5
2,364.3
2,424.6
2017
2018F
2019F
2020F
Year to 31 Mar (%)
2017
2018F
2019F
2020F
Operating
308.9
249.1
256.0
262.3
Profitability
Pre-tax profit
309.1
288.4
280.0
287.6
EBITDA margin
18.7
17.1
16.2
16.1
Tax
(29.3)
(38.5)
(35.3)
(35.9)
Pre-tax margin
17.9
16.8
16.0
16.0
92.9
77.2
68.2
70.4
Net margin
14.9
13.7
13.0
13.0
Associates
(52.7)
(47.2)
(48.1)
(48.0)
ROA
11.8
10.2
9.7
9.8
Working capital changes
(11.3)
35.0
21.3
16.5
ROE
16.7
14.4
13.6
13.7
CASH FLOW
Year to 31 Mar (S$m)
Deprec. & amort.
Shareholders' equity
KEY METRICS
Non-cash items
0.0
0.0
0.0
0.0
Other operating cashflows
0.2
(65.8)
(30.1)
(28.4)
Growth
Investing
(95.1)
(67.1)
(76.9)
(73.9)
Turnover
1.8
(0.7)
1.9
2.8
Capex (maintenance)
(88.1)
(93.2)
(105.8)
(105.8)
EBITDA
3.7
(9.4)
(3.2)
2.1
Investments
(75.3)
(50.0)
(26.0)
(26.0)
Pre-tax profit
16.6
(6.7)
(2.9)
2.7
Proceeds from sale of assets
22.8
24.9
0.0
0.0
Net profit
Others
45.5
51.2
54.9
57.9
Financing
(172.8)
(188.7)
(198.7)
(192.6)
Dividend payments
(178.2)
(189.5)
(200.2)
(194.1)
4.3
2.3
3.0
3.0
Leverage
Issue of shares
Proceeds from borrowings
Loan repayment
Others/interest paid
Net cash inflow (outflow)
Beginning cash & cash equivalent
Changes due to forex impact
Ending cash & cash equivalent
0.4
0.0
0.0
0.0
(7.1)
(1.5)
(1.5)
(1.5)
7.8
0.0
0.0
0.0
41.0
(6.7)
(19.6)
(4.2)
489.9
508.4
501.7
482.1
2.0
0.0
0.0
0.0
532.9
501.7
482.1
477.9
Refer to last page for important disclosures.
16.9
(8.8)
(3.1)
2.7
Net profit (adj.)
7.4
(4.9)
2.3
2.7
EPS
7.3
(5.3)
2.2
2.6
Debt to total capital
6.0
5.8
5.6
5.4
Debt to equity
6.8
6.5
6.3
6.1
(24.8)
(23.8)
(22.2)
(21.5)
n.a.
n.a.
n.a.
n.a.
Net debt/(cash) to equity
Interest cover (x)
21
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
HOLD
(Maintained)
COMPANY UPDATE
Singapore Airlines (SIA SP)
Analyst Briefing Takeaways: Will Transformation Plan Be A Panacea?
SIA’s inability to pass on at least part of the fuel cost increases and a further 5% rise
in parent airline’s non-fuel cost is troubling. While SIA announced plans to revamp
its airline business, scant information is available. For now, we continue to value SIA
at 0.7x book value-ex SIAEC and rate the stock a HOLD as the street is already
pricing in further earnings deterioration. Suggested entry level is $9.00. Cut target
price to S$10.00.
WHAT’S NEW
• Announces a transformational plan that would include a revamp the entire
business. CEO Goh Choon Phong highlighted that SIA is undertaking a radical
transformation, but did not give much details. Our sense is that SIA is still exploring
options and does not have a concrete strategy to stem losses as yet. Details will be
released within six months. SIA also indicated that it will still maintain its premium focus.
• No plans to cut capacity but SIA plans better allocation of resources. From
4QFY17's results, it is clear that SIA operates long haul routes which are not profitable
and aggressive price discounting to promote demand has not enhanced network
connectivity in a profitable manner, despite improvement in load factors. Scoot and
TigerAir, which are now held under a holding company, Budget Aviation Holdings (BAH)
have fared better, but this is due to point-to-point traffic, rather than network connectivity
between the two. SIA had long expressed hopes for its extensive network connectivity to
boost regional connectivity and profits for SilkAir, however it appears that the costs and
benefits are not in SIA’s favour.
• Point of maximum pain? The only potentially positive takeaway is a comment that SIA’s
management made about other airlines feeling the pain as well and that this could lead to
saner pricing levels. But for that to happen, airlines must cut back capacity, which is
easier said than done, given that both wide-bodied and narrow-bodied aircraft deliveries
in 2016 were at record levels. ASCEND also notes that wide-bodied aircraft has been
oversupplied since 2016.
Share Price
Target Price
Upside
(Previous TP
S$9.98
S$10.00
-0.1%
S$10.10)
COMPANY DESCRIPTION
Singapore Airlines is Singapore's flagship
carrier, flying to more than 60 destinations in
over 30 countries. Traveller’s World
Magazine nominated SIA as Best Airline for
the sixth consecutive year in 2016.
STOCK DATA
GICS sector
Bloomberg ticker:
Shares issued (m):
Market cap (S$m):
Market cap (US$m):
3-mth avg daily t'over (US$m):
Industrials
SIA SP
1,181.5
11,826.6
8,507.1
8.4
Price Performance (%)
52-week high/low
1mth
S$11.20/S$9.60
3mth
6mth
1yr
YTD
1.7
3.1
(5.7)
3.5
(1.6)
Major Shareholders
%
Temasek Hldgs
56.0
FY18 NAV/Share (S$)
11.16
FY18 Net Debt/Share (S$)
1.53
PRICE CHART
(lcy)
SINGAPORE AIRLINES LTD
SINGAPORE AIRLINES LTD/FSSTI INDEX
11.50
(%)
110
11.00
10.50
100
10.00
KEY FINANCIALS
9.50
Year to 31 Mar (S$m)
Net turnover
EBITDA
Operating profit
Net profit (rep./act.)
Net profit (adj.)
EPS (S$ cent)
PE (x)
P/B (x)
EV/EBITDA (x)
Dividend yield (%)
Net margin (%)
Net debt/(cash) to equity (%)
Interest cover (x)
ROE (%)
Consensus net profit
UOBKH/Consensus (x)
2016
2017
2018F
2019F
2020F
15,229
2,257
681
804
804
69.0
14.5
0.9
4.5
4.5
5.3
(24.7)
n.a.
6.4
-
14,868
2,215
623
360
301
25.7
39.0
0.9
4.6
2.0
2.4
(15.9)
n.a.
2.8
-
15,091
2,176
460
317
317
26.9
37.2
0.9
4.7
1.1
2.1
13.7
36.7
2.4
504
0.63
15,613
2,304
520
316
316
26.8
37.4
0.9
4.4
1.1
2.0
43.4
13.4
2.4
425
0.74
16,212
2,625
765
430
430
36.5
27.4
0.9
3.9
1.5
2.7
67.9
8.7
3.2
352
1.22
90
9.00
8.50
8.00
80
8
6
Volume (m)
4
2
0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS
K Ajith
+65 6590 6627
[email protected]
Sophie Leong
+65 6590 6621
[email protected]
Source: Singapore Airlines Limited , Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
22
R e g i o n a l
M o r n i n g
N o t e s
• Hedged 21% of FY18’s jet fuel requirements at US$66/bbl and a further 20% on
Brent at US$53/bbl. For 1QFY18, SIA has hedged 39% of its jet fuel requirements at
US$65/bbl. Jet fuel currently stands at US$60/bbl.
• 5-year capex commitments amount to S$30b. SIA’s debt-to-equity could rise to 70% by
end-FY20, without further dividend cuts or aircraft sale and leasebacks. We have
assumed that dividend payout for the next three years will decline to 40% from 65% in
FY17.
STOCK IMPACT
• Little reason to be hopeful. While we acknowledge that there is no quick fix to the
solution of overcapacity, we are disappointed with the lack of concrete measures to
address losses. This is especially critical given that SIA has substantial capital
commitments.
• What if fuel prices rise further? If yields do not move in tandem with fuel prices or if SIA
continues to offer aggressive discounts, then losses will accelerate. For FY17, we have
assumed that fuel cost will average US$70/bbl. Every US$1/bbl without a corresponding
change in yield is estimated to lead to a S$60m variance in net profit.
EARNINGS REVISION/RISK
• We lower our FY18 net profit by 7% as we assumed lower yields and factored in higher
interest cost, arising from greater debt.
VALUATION/RECOMMENDATION
• Maintain HOLD. The stock has declined by 7.2%, post results and is trading close to 0.7x
book value, ex SIAEC. Following our earnings cut, we now tweak our target price down to
S$10.00.
Monday, 22 May 2017
SIA’S 4QFY17 OPERATING STATS
Year ending 31 Mar
Pax yield (S cents/RPK)
Cargo yield (S cents/CTK)
Pax Unit cost (S cents/ASK)
Cargo Unit cost (S cents/AFTK)
Pax breakeven LF (%)
Pax LF (%)
Cargo breakeven LF (%)
Cargo LF (%)
4QFY17
10.1
26.0
8.7
17.0
86.1
80.6
65.4
63.6
yoy % chg
(4.7)
(3.0)
4.8
(5.0)
7.8 ppt
2.1 ppt
-1.4 ppt
2.3 ppt
Source: SIA, UOB Kay Hian
OPERATING ASSUMPTIONS
Year to 31 Mar (%)
Pax Traffic Growth
Pax Capacity Growth
Pax Yield Growth
Pax Load Factor
Cargo Traffic Growth
Cargo Capacity Growth
Cargo Yield Growth
Cargo Load Factor (%)
FY17
-1.4
-0.6
-3.8
79.0
5.8
3.8
-10.3
63.1
FY18F
0.6
0.4
-0.7
79.2
4.5
3.0
1.0
64.0
FY19F
1.5
0.8
1.2
79.7
1.8
1.0
1.3
64.5
Source: UOB Kay Hian
SIA EX-SIAEC P/B
(x)
1.3
1.2
+1SD
1.1
1.0
Mean
0.9
0.8
-1SD
0.7
0.6
0.5
SHARE PRICE CATALYST
• Capacity cuts across the industry.
SIA’S PAX YIELDS
06
07
08
09
10
11
12
13
14
15
16
17
Source: Datastream, UOB Kay Hian
SOTP VALUATION
(S$)
SIA Book Value Per Share
Less Carrying Cost Of SIAEC Per Share
SIA value per share (ex SIAEC)
SIA @ 0.7x BV
Fair Value per share of 77% SIAEC stake
Value of SIA Group
FY18F
11.50
0.98
10.51
7.43
2.58
10.00
Source: UOB Kay Hian
Source: SIA
Refer to last page for important disclosures.
23
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS
Year to 31 Mar (S$m)
Net turnover
Monday, 22 May 2017
BALANCE SHEET
2017
2018F
2019F
2020F
Year to 31 Mar (S$m)
2018F
2019F
2020F
14,868.5
15,091.4
15,612.8
16,212.4
16,433.3
19,996.4
24,503.6
28,677.2
EBITDA
2,214.7
2,176.4
2,304.2
2,625.2
Other LT assets
2,586.7
2,450.2
2,275.5
2,079.5
Deprec. & amort.
1,591.9
1,716.6
1,784.2
1,859.8
Cash/ST investment
3,920.4
2,913.6
1,592.6
1,587.2
EBIT
622.8
459.8
520.1
765.4
Other current assets
1,779.6
1,784.6
1,830.5
1,883.3
Total other non-operating income
(95.4)
(10.7)
(10.7)
(10.7)
Total assets
24,720.0
27,144.8
30,202.2
34,227.2
Associate contributions
(36.6)
27.1
78.7
93.4
27.8
(59.3)
(171.4)
(300.8)
Net interest income/(expense)
Fixed assets
2017
ST debt
42.0
42.0
42.0
42.0
Other current liabilities
6,246.6
5,700.1
5,875.8
6,104.8
10,829.2
Pre-tax profit
518.6
416.8
416.7
547.3
LT debt
1,794.7
4,672.2
7,350.7
Tax
(76.7)
(54.2)
(54.2)
(71.1)
Other LT liabilities
3,166.5
3,166.5
3,166.5
3,166.5
Minorities
(81.5)
(45.3)
(46.7)
(46.4)
Shareholders' equity
13,083.0
13,169.2
13,363.3
13,671.9
Net profit
360.4
317.3
315.9
429.8
Minority interest
387.2
394.9
403.9
412.7
Net profit (adj.)
301.3
317.3
315.9
429.8
Total liabilities & equity
24,720.0
27,144.8
30,202.2
34,227.2
2017
2018F
2019F
2020F
Year to 31 Mar (%)
2017
2018F
2019F
2020F
CASH FLOW
Year to 31 Mar (S$m)
Operating
KEY METRICS
2,532.9
1,447.5
2,410.1
2,753.7
Pre-tax profit
518.6
416.8
416.7
547.3
EBITDA margin
14.9
14.4
14.8
16.2
Tax
(50.5)
(76.7)
(54.2)
(54.2)
Pre-tax margin
3.5
2.8
2.7
3.4
1,589.8
1,712.6
1,780.2
1,855.8
Net margin
2.4
2.1
2.0
2.7
96.8
(661.6)
150.7
173.3
ROA
1.5
1.2
1.1
1.3
407.8
(1.2)
(52.8)
(67.5)
ROE
2.8
2.4
2.4
3.2
Deprec. & amort.
Working capital changes
Non-cash items
Other operating cashflows
Profitability
(29.6)
57.5
169.6
299.0
Investing
(2,943.5)
(5,095.1)
(6,124.0)
(5,887.9)
Growth
Capex (growth)
(3,944.7)
(5,480.0)
(6,540.0)
(6,280.0)
Turnover
(2.4)
1.5
3.5
3.8
848.6
0.0
0.0
0.0
EBITDA
(1.9)
(1.7)
5.9
13.9
45.4
243.2
293.2
293.2
Pre-tax profit
(46.7)
(19.6)
(0.0)
31.3
Investments
Proceeds from sale of assets
Others
107.2
141.7
122.8
98.9
Net profit
(55.2)
(11.9)
(0.4)
36.0
Financing
(224.6)
2,640.8
2,392.9
3,128.8
Net profit (adj.)
(62.5)
5.3
(0.4)
36.0
Dividend payments
(558.9)
(273.7)
(164.4)
(163.8)
EPS
(62.7)
4.6
(0.3)
36.2
Issue of shares
(101.1)
5.0
5.0
5.0
431.8
3,000.0
3,000.0
4,000.0
Leverage
(213.5)
(21.5)
(321.5)
(521.5)
Debt to total capital
12.0
25.8
34.9
43.6
217.1
(69.0)
(126.2)
(190.9)
Debt to equity
14.0
35.8
55.3
79.5
Net cash inflow (outflow)
(635.2)
(1,006.8)
(1,321.0)
(5.4)
(15.9)
13.7
43.4
67.9
Beginning cash & cash
equivalent
Changes due to forex impact
3,972.4
3,380.5
2,373.7
1,052.7
n.a.
36.7
13.4
8.7
43.3
0.0
0.0
0.0
Ending cash & cash equivalent
3,380.5
2,373.7
1,052.7
1,047.3
Proceeds from borrowings
Loan repayment
Others/interest paid
Refer to last page for important disclosures.
Net debt/(cash) to equity
Interest cover (x)
24
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
SECTOR UPDATE
OVERWEIGHT
Hotel – Thailand
(Maintained)
1Q17: Results Wrap-up
Total normalised profit of hotel stocks under our coverage grew 11% yoy and 54%
qoq to Bt2.9b in 1Q17 due to a continuous rebound in tourist arrivals as well as hotel
operations after several hurdles in 4Q16. ERW and MINT performed well in 1Q17,
while CENTEL saw hiccups. Maintain OVERWEIGHT. Our top pick is still ERW due to
its attractive valuation and it being a key beneficiary of the favourable outlook of
Thai tourism. Maintain OVERWEIGHT.
YEARLY TOURIST ARRIVALS
WHAT’S NEW
• Sector’s core profit in 1Q17 rose 11% yoy, led by MINT and ERW. Normalised profit
of Minor International (MINT), Central Plaza Hotel (CENTEL), and The Erawan Group
(ERW) collectively increased 11% yoy and 54% qoq to Bt2.9b in 1Q17. The qoq jump
was due to seasonality, while the yoy growth was fundamentally supported by hotel
operations normalising after several hurdles in 4Q16 (such as the mourning period and
crackdown on Chinese “zero-dollar” tours). MINT’s and ERW’s normalised profit grew
impressively by 17% yoy and 10% yoy respectively, while CENTEL’s performance saw
hiccups in 1Q17. Key highlights are as follows:
Source: TAT, UOB Kay Hian
QUARTERLY TOURIST ARRIVALS
a) CENTEL – Key pressure in 1Q17 came from the sluggish recovery of hotel operations
in Bangkok and Maldives. In addition, same-store sales (SSS) growth for its restaurant
business came in at -1.5%, dragged by two of its Big 4 brands - Mister Donut and
Auntie Aunt’s.
b) ERW – Key success came from enhanced returns after the heavy investment over the
past three years. Total group occupancy was maintained at a high of 84% which bodes
well for EBITDA margins thanks to economies of scale.
Source: Bloomberg, UOB Kay Hian
HOTEL REVENUE CONTRIBUTION (2016)
c) MINT – Its strong earnings growth was supported by improvements across the board.
It saw an improving hotel performance in Thailand and overseas, especially in Brazil.
Next, its restaurant business saw SSS growth of 1.3% yoy due to a well-diversified
portfolio and strong brand awareness. Lastly, its real estate business saw higher
revenue recognition.
NORMALISED PROFIT IN 1Q17
Btm
CENTEL
1Q17
747
yoy % chg
-1
qoq % chg
80
ERW
MINT
208
1,924
9
17
106
43
Total
2,879
11
54
Remarks
- Key drags came from a sluggish SSS growth,
and hotel operation in Maldives
- Improving hotel operations in Thailand
- Rising real estate business and Improving
hotel operations in Thailand and Brazil.
Source: UOB Kay Hian
ANALYSTS
Napat Vorajanyavong
+662 659 8033
[email protected]
Source: Respective companies, UOB Kay Hian
• Tourist arrivals in 1Q17 grew 2% yoy. Tourist arrivals in 1Q17 inched up 2% yoy to
6.2m. The number of Russian tourists jumped 37% yoy in 1Q17, while Chinese tourist
numbers continued to recover from -21% yoy in 4Q16 to -7% yoy in 1Q17. For the fullyear target, the Tourism Authority of Thailand (TAT) expects tourist arrivals to grow 6%
yoy to a new high of 34.5m in 2017 which we believe should be achievable driven by
Chinese and Russian tourists as well as the potential opportunities from China’s Boycott
of South Korea.
PEER COMPARISON
Company
Rec
CENTEL
ERW
MINT
BUY
BUY
BUY
Share
Price
(Bt)
35.00
4.68
36.50
Target
Price
(Bt)
43.00
6.20
41.00
Market
Cap
(Btm)
47,250
11,700
160,979
--- Core Profit --2017F
2018F
(Btm)
(Btm)
2,035
2,169
431
486
5,539
6,103
---------- PE --------2017F
2018F
(x)
(x)
23.2
21.8
27.1
24.0
29.1
26.4
--------- P/B --------2017F
2018F
(x)
(x)
3.6
3.3
2.3
2.1
4.0
3.6
--- EPS Growth --2017F
2018F
(%)
(%)
8.1
6.6
24.5
12.9
21.0
10.2
Source: UOB Kay Hian
Refer to last page for important disclosures.
25
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
• Improvement in sector’s performance to continue in 2Q17. Thailand’s hospitality
CENTEL – EV/EBITDA BAND
sector growth is expected to continue gaining momentum in 2Q17, supported by the
likelihood of a 6% yoy increase in the number of tourist arrivals in 2Q17. In addition, our
recent channel checks reveal improving RevPar growth for the sector which is likely to
have averaged at a high-single-digit to mid-teens growth in Apr 17.
• Hotel expansion plan. ERW will focus on expanding its Hop Inn brand budget hotel
business while CENTEL will likely focus on expanding its network of owned-hotels in the
economy segment mainly in Thailand under its new brand, COSI as well as expanding its
network of managed hotels in Thailand and overseas. Meanwhile, MINT will still focus on
the luxury segment as well as on expanding its network of managed hotels overseas.
ERW – EV/EBITDA BAND
HOTEL EXPANSION PLAN (OWNED HOTELS OR JOINT VENTURE HOTELS)
(No. of hotel)
ERW
CENTEL
MINT
2016
8
0
11
2017F
9
1
1
Source: UOB Kay Hian
2018F
9
1
1
Source: Respective companies, UOB Kay Hian
ACTION
• Maintain OVERWEIGHT on the hotel sector in view of: a) promising outlook for Thai
tourism, b) improving domestic consumption supported by rising farm income and the
Consumer Confidence Index, c) the sector’s core profit growth of 18% yoy in 2017, and d)
Thailand being a beneficiary of China’s Boycott of South Korea. Our top pick is ERW as it
benefits from strong hotel operations in Thailand and it has an undemanding valuation.
Source: UOB Kay Hian
MINT – EV/EBITDA BAND
SECTOR CATALYSTS
• Possible acquisitions of hotel properties and food brands.
ESSENTIALS
• CENTEL – Shaky start in 1Q17. CENTEL is one of the key beneficiaries of Thaiand’s
tourism boom as it has 80% of its hotel revenue coming from Thailand. However,
CENTEL saw poor earnings growth momentum in 1Q17 which could lead to downside
risk in consensus earnings forecast. Meanwhile, the key catalyst for the street’s projection
would come from the new acquisition of one local food brand which is still in the process
of negotiation.
• ERW – Promising outlook. As a pure hotel developer, ERW is well-positioned to benefit
from the promising industry outlook and rising Chinese tourist arrivals. Despite improving
core operations, share price is undemanding and the company trades at an attractive
2017F EV/EBITDA of 11.5x, or at almost -1SD to its 5-year mean. According to a recent
analyst meeting, management maintained its hotel revenue growth target of 10% yoy in
2017, largely in line with our expectation and the outlook in 2Q-4Q remains intact. In
addition, the newly-launched Hop Inn hotel in the Philippines (which opened in Dec 16)
saw an impressive performance with occupancy of 80% in ytd which is higher than its
internal target of 70%.
• MINT – Earnings growth continues to gain momentum. As almost 50% of MINT’s
Source: UOB Kay Hian
FUTURE HOTEL SUPPLY (DOWNTOWN BKK)
Segment
Luxury
First-Class
Mid-range
Economy
Total
5-year CAGR
3.5%
8.4%
1.4%
2.5%
3.6%
Source: CBRE
PEER COMPARISON FOR VALUATION IN 2017
CENTEL
ERW
MINT
Average
EPS growth
8%
25%
21%
18%
EV/EBITDA
10.7
11.5
18.6
15.7
Source: UOB Kay Hian
revenue comes from more than 30 countries, it seems to have the most diversified
revenue base among peers in terms of business lines and geographical coverage which
typically helps MINT withstand unexpected events in any country. We maintain our
positive view on MINT’s 2Q17 performance, driven by both its hotel and restaurant
businesses. The recent guidance suggests SSS growth in Apr 17 remained in positive
territory. Meanwhile, RevPar of its owned hotel portfolio also continued to gain
momentum, led by hotels in Thailand coupled with the continued recovery at hotels in
Brazil.
RISKS
• External risks such as natural disasters and a global economic slowdown.
Refer to last page for important disclosures.
26
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
COMPANY UPDATE
BUY
(Maintained)
CH Karnchang (CK TB)
Core Earnings Continue To Grow And To Get Stronger Next Year
Excluding the one-time VO from last year, CK’s 2017 core profit is expected to rise
26% yoy supported mainly by associates. 2018 core earnings are expected to surge
40% as support from associates will be enhanced by mega project contributions.
Meanwhile, orderbook remains solid and continues to grow. Maintain BUY. Target
price: Bt37.00.
WHAT’S NEW
• Solid orderbook. After securing Bt26b in mass transit contracts for the Orange Line, CH
Karnchang’s (CK) orderbook as of Mar 17 went up to Bt76b (from Bt57b at end-16). As
the concession contract to run the Blue Line Extension has already been awarded by the
government to CK’s 31%-owned associate Bangkok Expressway and Metro (BEM), we
expect M&E works for the project worth Bt20b will be awarded to CK in 2Q17. This would
raise CK’s orderbook to Bt96b. This is considered a solid orderbook which would account
for CK’s 2.7 years of annual turnover or 0.5x market cap to orderbook.
• Targets to bid for projects worth nearly Bt400b. Under the current government’s
action plan (Bt1.8t) and plan to establish eastern economic corridor (EEC: Bt1.5t), we
would expect a flow of mega projects to be put up for bidding over the next several years.
For the near term, CK is already targeting several projects worth nearly Bt400b. The
company will participate in the biddings for these projects. With its 20-25% success rate
in tender wins, we expect CK to win approximately nearly Bt100b worth of projects. We
therefore expect CK’s orderbook to exceed Bt100b by end-17.
• Associates fuel growth. Not only is CK’s good performance driven by mega project
wins, it is also driven by associate contributions. As most of CK’s associates are involved
in infrastructure developments (as project builders or operators), they tend to win mega
projects of which’s construction works are passed over to CK. As of Apr 17, 39% of CK’s
orderbook came from works under associates. This however reflects decline from the
peak in 2012 when works from associates accounted for 84%. Associate works
guarantee that CK will still have project works in the event of limited public projects. In
addition, CK’s associates also enhance its earnings in terms of interest income and equity
accounts. Based on Bt14b term loans given to an associate, Xayaburi Power, CK will
receive interest income of nearly 700m in the next two years. Good performances at
Bangkok Expressway and Metro (BEM: 31% owned) and CK Power (29% owned) are
expected to lift CK’s earnings by 116% and 79% in 2017 and 2018 respectively.
Share Price
Target Price
Upside
Bt26.75
Bt37.00
+38.3%
COMPANY DESCRIPTION
The second largest contractor in Thailand with
experience in building mass transit systems,
water treatment and hydro-electric dams. The
company has equity stakes in many
infrastructure companies in order to diversity
its long-term revenue.
STOCK DATA
GICS sector
Bloomberg ticker:
Shares issued (m):
Market cap (Btm):
Market cap (US$m):
3-mth avg daily t'over (US$m):
Industrials
CK TB
1,693.9
45,311.7
1,317.5
7.0
Price Performance (%)
52-week high/low
1mth
Bt34.25/Bt24.20
3mth
6mth
1yr
YTD
(5.3)
(11.6)
9.2
(13.7)
(4.5)
Major Shareholders
%
Trivisavavet family
44.9
Thai NVDR
3.8
Bangkok Bank
2.3
FY17 NAV/Share (Bt)
13.13
FY17 Net Debt/Share (Bt)
30.12
PRICE CHART
CH. KARNCHANG PUBLIC CO LTD
(lcy)
(%)
CH. KARNCHANG PUBLIC CO LTD/SET INDEX
36
34
140
32
130
30
KEY FINANCIALS
Year to 31 Dec (Btm)
Net turnover
EBITDA
Operating profit
Net profit (rep./act.)
Net profit (adj.)
EPS (Bt)
PE (x)
P/B (x)
EV/EBITDA (x)
Dividend yield (%)
Net margin (%)
Net debt/(cash) to equity (%)
Interest cover (x)
ROE (%)
Consensus net profit
UOBKH/Consensus (x)
150
120
2015
34,851
2,113
1,106
2,193
486
0.3
93.2
2.2
45.8
2.4
6.3
240.0
1.4
11.1
-
2016
45,808
2,481
1,497
2,002
1,731
1.0
26.2
2.1
39.0
1.9
4.4
208.4
2.1
9.5
-
2017F
35,034
2,179
1,184
1,526
1,487
0.9
30.5
2.0
44.4
1.3
4.4
229.4
1.3
7.0
1,575
0.94
2018F
38,376
2,772
1,765
2,085
2,085
1.2
21.7
1.9
34.9
1.7
5.4
217.9
1.8
9.1
1,912
1.09
2019F
42,029
3,246
2,228
2,273
2,273
1.3
19.9
1.8
29.8
1.9
5.4
209.1
2.1
9.3
2,243
1.01
28
110
26
24
100
22
90
100
Volume (m)
50
0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS
Kowit Pongwinyoo
+662 659 8304
[email protected]
Source: CH Karnchang PCL, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
27
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
ORDERBOOK
STOCK IMPACT
• Moderation of 2Q17 results (excluding VO). Despite many mega projects being put up
for bid and with some already having been awarded, actual project starts will take time.
We expect contractors including CK will start working on high-margin mega projects only
from 2H17 onwards. Therefore, we still expect CK’s 2Q17 sales will continue to decline by
59% yoy to Bt8.5b (-12% yoy excluding variation order at Xayabury: VO). Both 2Q17
gross and EBITDA margins should improve to 8% (6% in 2Q16) and 6% (5% in 2Q16), as
variation orders (VO) offered lower margins in 2016. Despite that, CK's 2Q17 earnings are
forecasted to fall by 52% yoy to Bt498m (-4% excluding VO)
EARNINGS REVISION/RISK
(Btb)
140
120
121
108
112
100
88
84
80
57
60
40
20
0
2012
2013
2014
2015
2016
2017F
Source: CK, UOB Kay Hian
• Sales forecasts revision. The Bt98b double track railway projects are back on the
bidding table, after having faced delays from the original schedule in Mar 17. In addition,
other project tenders have been pushed back by a few months, and we therefore view
that our 2017-18 sales forecasts may be too aggressive. We have revised down our sales
forecasts. However, we maintain our 2017-18 core earnings forecasts as interest income
from Xayaburi is sufficient to offset CK’s lower sales.
• Excluding VO, core profit to rise 26% this year and 20% next year. Based on our new
forecasts, we expect 2017 sales to drop by 24% yoy to Bt35.0b as there is no VO in 2017.
Excluding that, 2017 sales are expected to be flat yoy. On the back of the mega projects,
2018 sales are expected to increase by 10% yoy to Bt38.4b. 2017 EBITDA margin is
forecasted come in at 6% and increase to 7% in 201 - in line with the high-margin mega
projects. 2017 core earnings are forecast to be at Bt1.5b, a decrease of 14% yoy.
Excluding VO, 2017 core earnings should increase by 26% yoy. With mega projects’
contribution, 2018 core earnings are expected to grow by 40% yoy to Bt2.1b.
VALUATION/RECOMMENDATION
• Maintain BUY. As we expect CK’s earnings will start to improve in 2H17 and to surge in
2018, we maintain our BUY call on CK. Our target price remains at Bt37.00, based on
SOTP valuation.
CK’S BIDDING TARGET
Projects
Value
(Btm)
Double Track Railway
Huahin - Prachuabkirikhan
Nakornphthom - Huahin (cont 1)
Nakornphthom - Huahin (cont 2)
Mass Transit
Purple: Taopoon - Ratburana
Orange: Talingchan - Thailanc
Cultural
Blue: Bangkhae - Phuthamonthon
4
Green: Samutprakarn - Bangpoo
Green: Khukot - Lumlukka
Airport rail link: Donmuang Phyathai
Red: Rangsit - Thammasart
Red: Missing Link
Total
Bididing
date
8.4
8.5
7.4
3Q17
1Q18
1Q18
131.0
now - 2Q18
111.2
now - 2Q18
21.2
now - 2Q18
12.1
9.8
now - 2Q18
now - 2Q18
31.1
now - 2Q18
7.6
44.2
392.5
now - 2Q18
now - 2Q18
Source: CK, UOB Kay Hian
SALES AND CORE PROFIT (EXCLUDING VO)
(Btm)
2.5
SHARE PRICE CATALYST
(Btb)
50
• More mega projects put on bid and CK winning bids.
40
2.0
SOTP VALUATION
30
1.5
20
1.0
10
0.5
CK TB
BEM TB (31%)
CKP TB (29%)
Total
Value (Btm)
50,393
10,163
2,116
62,672
Bt/share)
29.75
6.00
1.25
37.00
Note
41.2x 2017F EV/EBITDA
market price
market price
0
0.0
2015
2016
Sales
Source: UOB Kay Hian
2018F
Core profit
Source: CK, UOB Kay Hian
RESULTS PREVIEW
Year to 31 Dec
(Btm)
Sales
Gross Profit
EBITDA
Pre-tax Profit
Tax
Net Profit
Net Profit (Ex EI)
EPS (Bt)
Gross margin (%)
EBITDA margin (%)
Net margin (%)
2017F
2Q17F
8,500
700
530
331
(28)
498
498
0.29
8.2
6.2
5.9
yoy
% chg
(58.9)
(43.7)
(53.3)
(68.6)
(56.9)
(51.5)
(51.5)
(51.8)
2.2
0.7
0.9
Source: UOB Kay Hian
qoq
% chg
5.1
8.7
6.6
303.7
133.3
64.9
89.4
63.3
0.3
0.1
2.1
1H17F
16,585
1,344
1,027
413
(40)
800
761
0.47
8.1
6.2
4.8
yoy
% chg
(44.1)
(33.7)
(40.9)
(66.4)
(66.1)
(39.9)
(40.5)
(40.0)
1.3
0.3
0.3
PROJECT & ORDERBOOK AS OF MAR 17
Projects
Newly signed in 2017
Booster Pump Station
Orang: Thailand Cultural-Ram
Orang: Ram- Huamark
Orang: Depot
Total
Active major projects
Purple Line, MRTA
Green Line, MRTA
Xayaburi Hydropower
Blue Line (M&E)
Purple Line (M&E)
Double Track: Chira-Khonkaen
230/500 kv Nabong Substation
Others
Total
Sub Total
Value
(Btm)
Remaining
(Btm)
303
19,283
20,100
4,515
44,201
106
11,570
12,060
2,709
26,445
30,241
15,410
94,340
1,270
1,675
21,898
2,665
56,731
224,230
268,431
1,243
1,175
22,830
1,093
1,611
11,803
1,253
8,707
49,715
76,160
Source: CK, UOB Kay Hian
Refer to last page for important disclosures.
28
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS
Year to 31 Dec (Btm)
Net turnover
EBITDA
Deprec. & amort.
EBIT
Total other non-operating income
Associate contributions
Net interest income/(expense)
Pre-tax profit
Tax
Monday, 22 May 2017
BALANCE SHEET
2016
2017F
2018F
2019F
Year to 31 Dec (Btm)
45,808
35,034
38,376
42,029
8,610
8,695
8,780
8,866
2,481
2,179
2,772
3,246
Other LT assets
52,989
53,838
54,713
55,615
Fixed assets
2016
2017F
2018F
2019F
984
995
1,007
1,018
Cash/ST investment
12,536
8,720
5,892
5,330
1,497
1,184
1,765
2,228
Other current assets
20,793
25,619
28,006
30,615
938
1,294
1,302
988
Total assets
94,928
96,872
97,391
100,427
ST debt
16,171
15,399
18,881
23,631
Other current liabilities
13,174
11,921
13,011
14,111
41,133
44,343
38,771
34,461
2,596
2,590
2,604
2,618
21,480
22,246
23,751
25,231
374
374
374
374
94,928
96,872
97,391
100,427
2016
2017F
2018F
2019F
578
800
919
1,036
(1,165)
(1,638)
(1,516)
(1,572)
1,848
1,639
2,471
2,680
LT debt
(77)
(97)
(329)
(348)
Other LT liabilities
Minorities
(40)
(55)
(57)
(59)
Net profit
2,002
1,526
2,085
2,273
Minority interest
Net profit (adj.)
1,731
1,487
2,085
2,273
Total liabilities & equity
2016
2017F
2018F
2019F
20,808
(4,558)
871
850
1,541
878
1,552
1,644
EBITDA margin
5.4
6.2
7.2
7.7
Tax
(77)
(97)
(329)
(348)
Pre-tax margin
4.0
4.7
6.4
6.4
Deprec. & amort.
984
995
1,007
1,018
Net margin
4.4
4.4
5.4
5.4
Associates
578
800
919
1,036
ROA
2.1
1.6
2.1
2.3
18,400
(6,280)
(1,302)
(1,405)
ROE
9.5
7.0
9.1
9.3
(578)
(800)
(919)
(1,036)
CASH FLOW
Year to 31 Dec (Btm)
Operating
Pre-tax profit
Working capital changes
Non-cash items
Other operating cashflows
Shareholders' equity
KEY METRICS
Year to 31 Dec (%)
Profitability
(40)
(55)
(57)
(59)
Investing
(14,670)
(928)
(1,044)
(1,074)
Turnover
31.4
(23.5)
9.5
9.5
Capex (growth)
(14,670)
(928)
(1,044)
(1,074)
EBITDA
17.4
(12.2)
27.2
17.1
161.0
(11.3)
50.8
8.4
(8.7)
(23.8)
36.6
9.0
Proceeds from sale of assets
Growth
n.a.
n.a.
n.a.
n.a.
1,660
1,670
(2,655)
(338)
Net profit
(1,101)
(761)
(580)
(792)
Net profit (adj.)
256.2
(14.1)
40.2
9.0
0
0
0
0
EPS
256.2
(14.1)
40.2
9.0
2,761
2,431
0
455
Loan repayment
0
0
(2,075)
0
Leverage
Others/interest paid
0
0
0
0
Debt to total capital
72.4
72.5
70.5
69.4
7,798
(3,816)
(2,828)
(562)
Debt to equity
266.8
268.6
242.7
230.2
4,738
12,536
8,720
5,892
Net debt/(cash) to equity
208.4
229.4
217.9
209.1
12,536
8,720
5,892
5,330
Interest cover (x)
2.1
1.3
1.8
2.1
Financing
Dividend payments
Issue of shares
Proceeds from borrowings
Net cash inflow (outflow)
Beginning cash & cash equivalent
Ending cash & cash equivalent
Refer to last page for important disclosures.
Pre-tax profit
29
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
Disclosures/Disclaimers
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30
R e g i o n a l
M o r n i n g
N o t e s
Monday, 22 May 2017
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31